The various types of loan modifications are as follows:
Step Rate Modification
Under this plan of loan modification a wrongful interest is being added to your principal loan amount. Thus they create a new loan. This is adjusted according to the existing terms and conditions of the loan as well as the current loan. The rate of interest here is adjusted only for a particular period. Generally this time period is 1-3 years. Every year this rate of interest is decreasing by 1% every year for a particular plan period. After the term is expired however this interest rate is increased by 1% every year until it increases back to its original rate. With this plan of loan modification the burden for paying for three months is reduced temporarily.
Extension of Term
In this case of this Extension of Term of loan the loan term is being extended for a bigger period. Delinquent interest and fees for lately made payment fees get added. They are then re-amortized according to the terms and conditions of the current loan. Hence this plan allows you to pay for smaller payments. The term of the loan is extended towards 20 years even. This depends on the loan term of the original loan. For example – If the original loan term is of 30 years then you are almost completing 10 years then the new loan term can again be extended for 30 years.
Straight Capitalization Loan Modification
Under this kind of loan modification the delinquent interest and fees for lately made payment fees get added. They are then re-amortized according to the terms and conditions of the current loan. Hence the rate of interest and the term of loan remain unchanged. The monthly payment amount however is much higher than the original payments and one who is confident of making these higher payments must only go for this type of loan modification. Under this plan the borrower has to prove his financial capability and then only he can go for this kind of modification.
Reduction In Interest Rate
Those borrowers who do not fall under any of the above categories remain only eligible for this kind of modifications. In this kind the delinquent interest and other charges are added up to your principal amount and hence re-amortized at a reduced rate of interest. The interest rate in such cases is reduced permanently.
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