You, like many homeowners in need of debt help, may be thinking that this mortgage modification program sounds great but how will a HAMP lower my mortgage payment?
The Obama loan modification program known as HAMP or the Home Affordable Modification Program is designed to lower the mortgage payment of homeowners who are in financial hardship. By obtaining a HAMP loan modification homeowners are able to lower their mortgage payment and make home affordable.
3 Ways Obama Modification Reduces Mortgage Payment
1) Interest Rate Reduction
The first and most common way a mortgage will be reduced through a Making Home Affordable Plan restructured mortgage is by a interest rate reduction. The interest rate of a mortgage has a significant impact on the amount of the monthly mortgage payment. Even a small reduction of the interest rate will yield big savings for a homeowner.
A interest rate reduction is also more appealing to lenders and banks because of the way it reflects on the balance sheet. The process of accounting, book keeping, and maintaining balance sheets will show a reduction in revenue but not a blunt loss.
All reduced mortgage payments that stem from a HAMP modification have a reduced rate of interest on the home loan. These interest rate reduction have gone a long way to help homeowners make home affordable.
2) Extending Mortgage Term
About half of all mortgage modifications through the Obama loan modification include an extension to the mortgage term. By increasing the life or number of monthly loan payments of a mortgage the amount of each payment will be reduced.
Though lenders will show a higher risk on their balance sheets by extending the term of a mortgage they are able to avoid a principal reduction or incurred loss.
3) Mortgage Principal Reduction
Almost a third of all mortgage modifications through the government loan modification program have a lower mortgage payment due to principal forbearance. By reducing the balance of the mortgage that is included in the mortgage payment amortization calculation the payment will be comparatively smaller.
Lenders are much less likely to entertain the idea of balance reductions because this is reflected as a direct loss on the balance sheets.
Homeowners in states such a Nevada, Arizona, California, and the other hardest hit states that have experienced the worst of the financial hardships caused by the current housing crisis are much more likely to obtain any sort of principal reduction.