How to Restructure an Existing Mortgage Loan in Tough Economic Times

Reduce the amount you send to your lender each month with loan restructuring.

If you're facing financial difficulties and struggling to make your monthly mortgage payments, there is hope. You can ask your mortgage lender or bank to restructure your loan so that your monthly payment is lower. This restructuring can take on many forms, including a lowered interest rate, reduced principal or lengthening of your loan's lifespan. To qualify for a loan restructuring, though, you'll first have to convince your lender or bank that you no longer have the financial resources to afford your monthly mortgage payments.

Difficulty:

Challenging

Instructions

Things You'll Need

• Mortgage loan statement
• Two most recent paychecks
• Federal income tax return
• Bank savings and checking account statements
• Credit card bills
• Loan statements (car, personal, etc.)

1. Gather the evidence that proves that you are suffering through difficult financial times. This evidence includes your last two paychecks, if you are still working, your most recent federal income tax return, savings and checking account statements, credit card bills and other loan statements, including student, personal or auto loans. Once you find these papers, make copies of them.

2. Draft a financial hardship letter. This letter, as its name suggests, spells out the reasons why you can no longer afford your monthly mortgage payment. You may have lost your job or be suffering through a serious medical condition. Maybe your employer slashed your hours. Include the reasons for your financial difficulties in your letter. Also include your request for a loan restructuring.

3. Call your mortgage lender or bank--you can find the customer service number on your most recent mortgage loan statement--and ask to talk to a supervisor. Explain to this employee that you have experienced a financial setback that has made it impossible for you to pay your current mortgage payments. Explain what this setback is and ask to have your loan restructured to one with lower monthly payments.

4. Send to your lender the financial hardship letter you wrote and the financial papers you copied. Your lender will review these to determine if your financial hardship truly is severe enough to warrant a restructuring of your mortgage loan.

5. Agree to a specific restructuring plan if your lender agrees to your request. If your lender reduces your interest rate, lengthens the terms of your loan or reduces your principal balance, your monthly payment will drop. Be certain, though, that the payment drops far enough so that you can comfortably afford to make it each month.

Tips & Warnings

• In 2009, the federal government launched its Home Affordable Modification Program, which provides financial incentives to lenders or banks that modify the existing home loans of homeowners who are struggling to make their payments. Ask your lender if it is participating in the program. Lenders who aren't can still modify your loan at their own discretion. But those participating in the program might be more inspired to work to lower your monthly payments.

References

• U.S. Department of Housing and Urban Development: Home Loan Modification Questions
• Making Home Affordable: Home Loan Modifications