Win-Win with Mortgage Modification

For many people considering a divorce or separation, the biggest challenge is finding a way to support two separate households on the same income that was previously supporting only one. Even those who have already separated find it difficult to maintain a reasonable lifestyle with only one income. And the biggest expense is often the house which may be difficult if not impossible to sell in today’s market. There is something you can do, however, that will help you save a lot of money each month without incurring the cost of refinancing the mortgage.

Refinancing your mortgage can save you a lot of money each month by either extending the term or lowering your rate, but the closing costs are often $5,000.00 or more. A better solution may be to modify your existing mortgage. This is called a Modification, Consolidation and Extension Agreement and works like this:

You approach your current mortgage holder and tell them you can’t afford the current mortgage and need to lower your monthly payment. Since this bank has already recorded your mortgage, there is no need to record a new mortgage, which requires a very expensive “mortgage recording tax.” There also isn’t any reason to purchase another title insurance policy, which can also be very expensive.

Instead, the bank simply “modifies” the existing mortgage by extending the term, removing a spouse from the obligation and/or lowering the interest rate. And it can do this with a simple modification agreement that will often cost no more than $500 to $750 to prepare. The bank can even give you additional money as long as they don’t exceed the original amount of the loan, which you can use to buy out your (former) spouse or pay off other bills.

A lot of banks are receptive to this because otherwise they are faced with the prospect of either having a mortgage go into default or having you take your business to a different bank. The latter is especially costly for them because you will not just take your mortgage to the new bank but will take all of your accounts, including your checking, savings, etc.

So, if you are struggling in this shaky economy to maintain your mortgage payments, the Modification, Consolidation, and Extension program may be just right for you.