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Five Traps to Avoid When Modifying Your Mortgage Loan

By Ralph R. Roberts, Lois Maljak, Joseph Kraynak

Part of Loan Modification For Dummies Cheat Sheet

When your mortgage lender presents an offer in response to your request for a loan modification, step carefully through the minefield to avoid these common traps:

  • Take-it-or-leave-it traps, such as “pay the past-due penalties now or roll them over into the balance,” when the lender has a third option of dropping the penalties.

  • Additional legal protections for the lender, such as requiring that in the event the lender loses the original loan documents, you must assist the lender in reproducing them.

  • Time bombs, like step-rate increases that are too steep or too frequent to adjust to or balloon payments that come due before you have time to prepare for them.

  • A loan modification that results in a payment you can’t really afford or that makes your budget so tight you’re one major car repair or medical expense away from default.

  • An interest rate that can automatically adjust based on an index over which you have no control.