Can you work with your mortgage lender to have them willingly lower your principle balance?

Question

Has anyone done this? Also, will this negatively affect your credit score? I would think the lender would rather lower your principle balance than face foreclosure.

Answer 1

Never your principal balance... but you can work with them on the payment terms.

Answer 2

I live in Australia where banks are notorious for making life as difficult as possible for struggling homeowners who want to switch to a more competitive interest rate.  The exit penalties are phenomenal if you want to switch to a rival business (like thousands of dollars!).

In Oz, if you are struggling with your repayments, you can:

Switch all or part of your loan to an interest-only basis.  While you're not repaying any of the capital on an interest-only loan, it is very good at cutting outgoings if you're repayments are too difficult to maintain.  For example, $300,000 mortgage, discounted rate 8.27 per cent...switching to interest-only cuts repayments by $301 a month, from $2369 to $2068.  This is a short-term emergency measure.

Extend your loan term - will mean a fortune in extra interest but it's another avenue to help with cash flow in the short-term.

Contact your lender and discuss your options.  These may include asking for a "variation" on the contract to allow you to reschedule payments...pay a lower amount for a short period until you get back on top of your finances.

Answer 3

sure they can lower ur principle balance with the cash you give them

Answer 4

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Answer 5

They will not lower your principal.  They may work with you on a loan modification to keep you in your house.  

Answer 6

you have to refinance

Answer 7

Our company has gotten 2nd mtg's removed, principal balance reductions and lower rates. The only way to get this done is if your lender or broker did something that was contrary to the guidelines set by the Dept of Banking and Financial services. For example: I have a client who was looking to refinance and didnt qualify, the lender asked if there was anyone else that could go on the loan. The borrower doesnt know the law and told the lender that he had a son, his son went on the loan but the son had never been on title and is still not on the title to the home. This is a very big violation. Another client got into a property and after reviewing the documents, the broker made up assets, income, employment, etc... These are all violations and carry with them penalties and big lawsuits. So this is how you can get the bank to reduce your loan. If he only thing that happened to you was that you lost hours at work and are unable to make the payements because of that, then you have to either get a P/T job or let the property go.    

Answer 8

NOPE, not gonna happen

You signed contract, you owe them

They MIGHT work with you and lower your interest rate, but not principal, and why should they?  If you overextended yourself, if your house has declined in value, it's not through any actions of the lender, and WHY would they do it?

Answer 9

HR3221 introduces a special FHA program which is based on reducing the principal balance it a maximum of 90% of the current appraised value.

I believe that the law goes in to has an effective date of 10/1/08 so the program may not be available, but if you may be upside down you might want to contact your servicer to see what they know about it.

Of course, lenders do not want to reduce the balance, but it could be preferable to a foreclosure. First, they prefer to do a rate reduction, then a term extension and the last resort would be a principal reduction.

You may also want to get in touch with http://www.hopenow.com if you are at risk of foreclosure.

Good luck.