ContractIt is common for homeowners to consider loan modification options to address past due mortgage payments or high interest rates.  Federal programs designed to help homeowners in default include the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP).  Both are basically loan modification programs because both change the terms of the original loan.

While I believe the programs are an incredible benefit to homeowners, it is important to understand the true cost of the programs.  I have seen time and time again instances where a homeowner had been paying regularly for ten or more years on a 30-year fixed mortgage only to fall behind on payments.  Thinking modification is the only option, the homeowner negotiates a loan modification to address the default.  What the homeowner did not realize is the loan modification extended the loan to 40 years and includes a balloon payment for the default at the end of forty years.  Too often desperate homeowners focus on the new monthly payment after modification or the short term reduction of their interest rate instead of the overall financial good judgment to enter the agreement at all.  The decision often means losing the ten years paid on the mortgage and gaining an additional 20 years in exchange for a lower monthly payment.  Hamp and Harp are not the only games in town.  Before you make a 40 year mistake and a balloon payment attached to it, speak to a qualified attorney to discus other options to handle mortgage arrears.