If you need a loan modification on your mortgage, you have likely been affected by the current economy. Here today we are going to explore the different loan modification scenarios you might be considering. We’ll use different property/home values and different APR calculations throughout. No matter where you live (in California and elsewhere in the United States) you will be able to see your financial situation in these examples.

If you want a loan modification on your mortgage, you will most likely require a longer term loan, with lower monthly or biweekly payments to contend with. This kind of relief from your bank or lender is only the first stage of coping with a personal financing downturn. Once you have renegotiated your loan for more years and/or months, and for as low an APR as you can get, you need to look at a way of managing your debts. Usually a debt consolidation loan is needed to pool all your high interest notes into one lower payment.

If you are falling behind on payments, you will know exactly what I mean. You have likely been looking for, and perhaps found, your FICO score situation with 3 different credit reporting agencies as well. You must try not to let stress and fear take over your life in a negative way. Just try and accept your current financial consideration, and calmly go about the business of reducing debts, and getting a mortgage loan modification.

So let us get on with it. We’ll now do the calculations on various loan mods.

Loan Modification Example #1 – 25 Year Mortgage For $250,000

So if your mortgage is for around 250,000 dollars, over 25 years, and you are currently paying back the loan based on an APR of 5%, this the is the status of your existing agreement with the bank. We’re assuming that you make your payments once a month. You can do any calculation you like with an scenario yourself using the calculator found below.

This is a more common situation for most families and home owners renegotiating their mortgages via a loan mod. You can use this financial product/instrument for any house and/or property of course. It depends on many factors, including the location of your home, the market value when you apply, and whatever your credit rating is at the time.

See the calculation below;

Mortgage = 250,000
APR = 5%
Payment schedule = monthly
Mortgage length in years = 25

Loan Calculation Results Before Mod
Total Amount to be payed: $406,763.93
Total amount of interest $156,763.93
Payments: $1,337.31

You can see that your total interest paid over the 25 years would be a whopping 157 thousand dollars. This is actually “not bad” as far as a home mortgage goes, but let us look at what happens after a loan modification.

After The Mortgage Modification

Below is the same real estate (home/property) after a loan modification which resets the mortgage for a longer period of time.

Mortgage = 250,000
APR = 5%
Payment schedule = monthly
Mortgage length in years = 35

Loan Calculation Results After Modification
Total Amount to be payed: $469,263.87
Total amount of interest $219,263.87
Payments: $1,101.99

As you can see in these results after the loan modification, the amount of interest paid over 35 years is 60,000 dollars more than the original mortgage, BUT notice the monthly payments are over $230 dollars less every month. This extra money can pay some bills for sure. Phone, utilities, health care payments, tuition, etc. etc.

In our next example we will look a much larger mortgage and APR. This will show how a mortgage renegotiation can REALLY make a big difference in a home owners monthly payments.

Loan Modification Example #2 – 20 Year Mortgage For $1,500,000

This would be an example of a jumbo mortgage in the process of a loan mod. Notice how the APR level is much different after the modification. Notice the length of the mortgage term in years, and the adjustment of the principal loan amount.

This example is not your typical loan mod, but it shows in dramatic fashion how a modification can make a huge difference in monthly payments, and overall interest paid over the full length of a mortgage.

Mortgage = 1,500,000
APR = 10%
Payment schedule = monthly
Mortgage length in years = 20

Loan Calculation Results Before Mod
Total Amount to be payed: $3,006,170.01
Total amount of interest $1,506,170.01
Payments: $12,354.12

Notice how the interest paid on this mortgage as it sits now, has the borrower paying over 1.5 million dollars in interest over the 20 year term, and take notice of the monthly payments of around 12,000 dollars. I know this sounds outlandish to the average home owner, but there are many households in the United States that are paying this kind of money. A small percentage of the population, but there are many wealthy citizens like this.

After The Mortgage Modification

In this borrower’s example, they are increasing their mortgage length by 20 years, and their APR is greatly reduced after the mod. Take notice that the principal is different because the borrower(s) has paid down a significant amount on the loan – and of course notice the 40 year mortgage length – yes, these kinds of mortgages are out there when you get a so-called jumbo mortgage.

Mortgage = 1,100,000
APR = 2.5%
Payment schedule = monthly
Mortgage length in years = 40

Loan Calculation Results After Mod
Total Amount to be payed: $1,651,130.65
Total amount of interest $551,130.65
Payments: $3,392.73

See how the total amount of interest paid on this mortgage is approximately one million dollars less than before the modification – not to understate the monthly payments being over 9 thousand dollars less! This shows you how a mortgage mod can really make big difference depending on your financial situation and the lending institution you are negotiating with.

Loan Modification Best Case Scenario

If you can get your bank to give you a mortgage for a much longer period of time, and get your APR lowered greatly, you can GREATLY change your personal finances for the better.

A loan mod, whether it be on a jumbo mortgage, or a more typical mortgage of under $200,000, can improve your monthly balance sheet so much that you can stay in your house and not face foreclosure – but you will have to shop around for a bank (lender) that will be willing to negotiate in a fair and honest way.

First thing you will want to do is talk with the bank that currently holds your mortgage note, and see if they are willing to carry out a significant loan modification. If you have a bad credit rating, and the resulting very low FICO score (say below 600 as per the credit bureaus) that goes with it, will make a loan modification tenuous. If your credit rating is too low then you a loan modification may not be possible. In this case, you may need private money to change your financial situation.