Mortgage Modifications Offering 40-Year Loans

With so many troubled homeowners needing modifications on their home loans, more lenders are turning to 40-year options when modifying loans.

The federal government has ordered many mortgage lenders to modify the loans of many homeowners rather than allowing them to go through foreclosure. The reason for doing this is to cut the borrower’s monthly payments enough so that they are less than one-third of the person’s income. For some, this is a great way to get out of their delinquency problems with their mortgage. Lower payments allow them to make their payments with some flexibility left in their budget. Others, however, are not encouraged by the idea.

Maria Olmo is a 63-year-old homeowner who has recently needed a loan modification so she can make her payments on her home. Her lender modified her loan into a 40-year mortgage. Olmo says the modification is “ridiculous” as she will be dead before her mortgage loan is ever paid off. This modification from a 30 year to a 40 year mortgage loan is becoming more common, too. More than 50 percent of the nearly 400,000 mortgage modifications that have gone through the Making Home Affordable Program have extended the mortgage terms by ten years while reducing the monthly payments.

It was only six months ago that less than half of those modifications (about 42 percent) were getting 10-year extensions. The federal government isn’t being specific about the number of homeowners who have received these 10-year extensions as part of their loan modification. However, lenders are reporting that this type of extension is the most common type of modification going through these days.

Other modifications include trimming down the principal balances for homeowners who are “underwater” on their homes and reducing interest rates. The former has helped nearly one-third of all homeowners who received a modification while the latter has been a term of the modification for all modified loans.

Unfortunately, according to Orlando lawyer Matt Englett, these people receiving the 10-year extension are turning their homes into rental properties essentially. For homeowners over 60, getting a 10-year extension essentially means that they will never pay off their mortgage because they are more likely to die first. As a result, they will have a payment for the rest of their life, much like Maria Olmo. But the government is pushing these extensions and lenders prefer these new options rather than writing off principal from the balances. Some lenders are offering counseling sessions to help homeowners in danger of default and foreclosure choose the best modification that fits their financial needs the best.

Of course, with the current mortgage rates the way they are, refinancing is also becoming a popular option for some homeowners. If you qualify, this is probably the best option for you!