Reduce Your Principal

When you are struggling with your mortgage payments and facing foreclosure, it’s important to remember you do have options to save your home. An experienced bankruptcy and loan modification attorney can help you explore your options to find a solution that gives you an affordable monthly payment.

There are many forms of loan modifications, including interest rate reduction, loan term extension, and changing loan types. One potential option is reducing the principal balance on your mortgage through restructuring the loan.

Reducing the Principal on Your Mortgage

If you owe significantly more on your mortgage than your home is worth, your lender may agree to a principal reduction in a loan modification. A reduction in your principal loan amount can make your monthly mortgage payment more affordable and make it easier to begin building equity in your home.

While loan modifications with principal reduction were once very rare, they have become more common, in part due to plummeting home prices in many areas after the housing collapse and several government programs that encourage principal reduction modifications. There are several reasons a lender may be willing to reduce your principal:

• If the home forecloses, they are highly unlikely to get anything you owe above the home’s value anyway. Foreclosure is also time-consuming and expensive for banks and it may leave them with inventory that takes months or years to sell.
• Homeowners who are underwater on their mortgage have reduced incentive to continue making mortgage payments because they are not building equity.
• Studies have found that when lenders reduce the principal on loans to be less than the home’s value, banks have a better chance of receiving future mortgage payments and a better effort from the homeowner.

As an example of how much a principal reduction can save you, imagine your mortgage is $250,000 but your home is only worth $150,000. You have a monthly mortgage payment of $1,459. If your lender reduces the mortgage balance to the home’s value of $150,000, your monthly payment would drop to $923 per month, or $535 less every month.

Contact a Las Vegas Loan Modification Lawyer

While principal reduction can be an option to help you save your home, lenders typically do not advertise this option to homeowners. You can work directly with your lender or a loan modification attorney in Nevada to benefit from a principal reduction modification to save your home and enjoy lower mortgage payments that are more in line with your home’s value. Contact Las Vegas BK for a free consultation with a Nevada bankruptcy and loan modification attorney to explore your options.