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Examples And Summary Of The Loan Modification Process (Page 1 of 2)
If you are trying to stop foreclosure, or have a mortgage payment that is too much, then you’ve probably thought about getting a mortgage modification. A mortgage modification is when the terms of a loan are permanently changed to allow a reduced payment.
The reduced payment is accomplished by either reducing the interest rate, lengthening the term, or lowering the balance to be more in line with the current market value. In most cases, a combination of all three of these choices are used to reduce the mortgage payment. There are other interesting options to reduce a payment with a modification too, but they all center around the term of the mortgage, the payoff, and/or the interest rate.
Here is an uncomplicated example of how a mortgage modification can lessen the payment, using each of the three options above.
Method 1 Dropping the interest rate
Lets assume the mortgage balance is $200,000 and the current interest rate is 7.75% and the payment amount is $1,750. Lets also assume this borrower has 20 years left on a 30 year loan. The borrower can no longer afford this payment because of a loss of income. They can afford a $1,250 payment, so the bank agrees to reduce the interest rate to a fixed rate of 4.25% for the remaining life of the mortgage. This will give them a payment of $1,240, without the need to lengthen the term of the loan or lower the payoff amount..
Method 2 lengthening the term of the loan
Lets use the same example above, only this time, we’ll assume the homeowner can afford a $1,500 payment. The loan amount will still be $200K and the interest rate will still be 7.75%. But in this case, the investor was not willing to reduce the interest rate. This happens very often, because the investors on the loan are not willing to accept a reduced rate. In this case, extending the length of the mortgage will make the payment affordable again and the investors will keep their 7.75% interest rate. The $200,000 balance is re-amortized over a 30 year period to get a reduced payment of $1,430. Everyone is happy because the foreclosure was prevented and the new payment is affordable.
Method 3 Dropping the payoff amount
In order for a payoff amount to be reduced, the value of the house must be less than the payoff amount. In a few cases, lenders will reduce the payoff amount without this stipulation, but it’s highly doubtful. To get the payoff amount reduced, you must give documentation to the lender that foreclosing on the house will cost more than dropping the amount owed to make the loan affordable again.
In this case, we’ll assume the home’s current market value has been established at $179,000, but the payoff is still $200,000. If the bank forecloses on the property and tried to re-list it, their estimated loses will be 30% of the home’s value. So after foreclosing on the property and re-selling, they will receive approximately $125,000, if they are lucky. Most lenders expect to lose 30%-60% on every foreclosure property, so this amount is being very generous.
Contact Pawn Shops for instant requirement of Cash
Life always faces ups and down in financial position. Sometimes it happens that a person comes in need of money badly that they have to take loan to meet their requirements. Then the only resource left is to take loan, deciding what type of loan customer want whether its a short term loan or a long term.
Everyone must have heard about the famous London Pawn Shops, located on the heart of the city which pays the correct value of the asset. Most of peoples choose London pawnbrokers because it takes a very low interest rate and peoples are not forced to pay more than the value of stuff to get cash for their need. The stores of pawn broker are members of the National Pawnbroker Association.
The pawn shop provides quality service with priority to serve their customers in a better way and ensure a fair deal pricing method. The pawn dealers accept the deposition of useless, but luxurious items such as Rolex watch, gold, diamond, platinum or silver jewelry, artwork, antiques items and lot more
The customers request to quote for valuation of their valuable products which is taken for pawning, used as a collateral security by the company.
Beside these the brokers also accept electronic items and musical instruments like guitar, a lot more!! But such items are subjected to be checked by them as the shop broker doesnt accept the risk of taking items that may damage beyond the repair; the items in good conditions are accepted. Pawn dealers lend instant cash to its customer, but take time in realizing the value of artwork, antiques, musical instruments or others. Mostly peoples look out for cash in exchange of gold and always select a pawn broker for short term 6 month duration loan. The customer can pay off their amount on or before the time duration with the amount fixed and calculate the interest rate.
The valuable items of customers are kept safely and if the clients fail to repay the amount because of any unavoidable circumstances can either extend the time duration or ask the broker to resell their product. The Broker resale the item takes its amount and pays off the difference amount to its client. This is how they make a proper valuation of assets. The sale and auction time offers the customers to purchase luxurious products at a very low rate. The online facility of filling one page document and door service made the pawn shop raise 15 % higher in the market as compared to last year. So, if a customer is looking to get instant Cash no place can be better than opting for Pawn Shop, UK.