Greater Central Texas Federal Credit Union,
3305 E Elms Road
Killeen, TX 76542
Telephone: 254-690-2274
www.gctfcu.net

Pros And Cons Of Home Loan Modification

Home loan modification can be a good option for borrowers who find it difficult to pay their monthly mortgage installments. It is also sometimes helpful in avoiding a foreclosure and saving the lender from having to deal with the process. Lenders also suggest applying for a loan modification, particularly if the borrower is experiencing a temporary financial crunch. It provides the assurance that he will resume making timely payments over time.

What Exactly Is Home Loan Modification?

Home loan modification refers to the process of altering the terms and conditions of a mortgage agreement. It is usually requested by the borrower and on being approved by the lender, the loan repayment is then governed by the new contract. The lender may either approve or reject the application for home loan modification, depending upon the current financial condition of the borrower.

If you are planning to apply for a home loan modification, given below are certain pros and cons that you must consider before making the final decision:

Pros

Extended Loan Term

A shorter loan term implies higher monthly installments. This is the reason why most borrowers opt for a longer loan duration. However, when you extend the repayments to several years, you ultimately tend to pay more as interest. Home loan modification provides a convenient alternative to increase the loan term, without changing the rate of interest. The lender may extend your loan term initially, making it convenient for you to make the monthly payments.

Reduced Interest Rate

In a home loan modification, the lender may also reduce the interest rate for a short time period. This may be done to reduce the monthly installments and allow the borrower to recover from the financial crisis. In such situations, the loan conditions are re-evaluated to determine the amount you can easily pay according to the current debt-to-income ratio. The interest rate may then be temporarily reduced and gradually increased according to the market conditions.

Save Money For Other Liabilities

If you have another pending loan, such as an auto loan, student loan or credit card bill, getting your home loan modified may help you to save money to pay for these. With lower mortgage payments and lesser interest rate, you will have significant money to pay down each month towards other financial liabilities.

Cons

Strict Eligibility Requirements

In order to qualify for home loan modification, you need to convince the lender that you are genuinely facing difficulty in making the monthly mortgage payments. He may verify your credit rating, current financial position, other liabilities etc. to ensure that you are eligible for the program. You may need to provide a number of documents stating all your sources of income and monthly expenses, Due to the extensive paperwork involved in the process, getting a home loan modified may take approximately 30 to 180 days.

Negative Impact On Credit Score

People who apply for a home loan modification would obviously have some sort of financial crisis, which may be perceived as a risk by the future lenders. Applicants with a good credit rating and a flawless record of loan repayments are generally preferred by most lenders. Thus, modifying the home loan may greatly affect your future borrowing abilities, specifically if you are planning to get a higher amount.

Can Be A Risky Proposition

Home loan modification can be a real risk, particularly if you have not done your research. If the lending institution has proposed modifying the home loan, it does not necessarily mean that they will not initiate the foreclosure process. Though it may be true in some cases, you may have to leave your home while the loan modification application is still being reviewed by the lender.

Considering the above pros and cons, it is important to evaluate all your options before applying for a home loan modification.

Greater Central Texas Federal Credit Union is a leading credit union in Killeen, TX providing comprehensive financial services to the clients. We offer flexible home and auto loans at low interest rates and with easy repayment options. For more information, you can call us at (254) 690 – 2274 or visit our office at 3305 E. Elms Rd., Killeen, TX  76542.

Comments are closed
GCTFCU Blog | Fixed Vs. Floating Interest Rate: Home Loans In Killeen, TX
Greater Central Texas Federal Credit Union,
3305 E Elms Road
Killeen, TX 76542
Telephone: 254-690-2274
www.gctfcu.net

Fixed Vs. Floating Interest Rate: Home Loans In Killeen, TX

Getting a home loan from a credit union in Killeen, TX is not a very tedious job as there is minimum paperwork involved. However, you need to choose whether you want to opt for a fixed or floating rate of interest. Both the options have their own advantages as well as disadvantages and it is up to you to decide which one is better.

Fixed rate of interest home loans

A fixed rate of interest implies repayment of loan in fixed equal installments during the loan term. In this case, the rate of interest remains constant and does not change with the market fluctuations.

Advantages:

  • No alterations in the rate of interest irrespective of market conditions.
  • Perfect option for people who have fixed budgets.
  • It is a secure alternative.
Disadvantages:

  • Loans are 1 to 2.5% higher than floating interest rate depending on the bank.
  • If the interest rate decreases in the market, you will not get any advantage.
  • In some instances the fixed rate home loan is fixed only for a few years and not the complete loan tenure.
Floating rate of interest home loans

If you apply for a home loan with a floating rate of interest, it simply means that the interest rate will differ as per the market conditions. In this instance, the interest rates are associated with a base rate and a floating element. Therefore, if there is any alteration in the base rate, the interest rate also fluctuates.

Advantages:


  • Cheaper than fixed interest rate home loans.
  • If the floating rate increases than fixed rate, it is temporary and not for entire loan period.
  • Can prove to be beneficial if you want to save money.
Disadvantages:

  • Monthly installments are not constant.
  • You can face difficulty in planning your budget.
  • There has been a hike in floating interest rates in recent times.

It can be concluded that fixed as well as floating interest rate home loans in Killeen have positive as well as negative aspects. Generally, borrowers opt for a floating rate of interest when applying for a home loan from a credit union. However, if you want more security and certainty, it is better to opt for a fixed rate home loan.

If you are looking for affordable home loans in Killeen, TX, consider Greater Central Texas Federal Credit Union. For more information, call at (254) 690 – 2274 or visit 3305 E. Elms Rd., Killeen, TX  76542.
Comments are closed