Loan modifications: When refinancing isn’t an option
While refinancing is one solution, it might not be right for every Minnesotan who is struggling with debt.
On April 15, Holly Johnson, a 32-year-old wife and mother of two children, published an article on GetRichSlowly.org, an online resource that offers financial advice to consumers, entitled “The Hassle of Being in Debt,” in which she discussed how she came to be burdened by excessive monthly mortgage payments.
Johnson says that when she and her husband first purchased a home, they didn't put a lot of money down. Since the market was at a peak, they were able to take advantage of a favorable deal, provided they paid for mortgage insurance. This policy, she estimated, cost her family more than $130 per month in unnecessary spending.
To fix the problem, Johnson refinanced her mortgage, working with her current lender to switch from a 30-year loan at 5 percent interest to a 15-year home loan financed at 3.25 percent. While this tactic cut her monthly payments, refinancing only caused her additional troubles.
Since her new home loan was only 11 months old, she wasn't able to reduce her mortgage insurance even though she and her husband had worked tirelessly to satisfy the equity terms inherent in the original contract. Ultimately, Johnson needed to secure an additional mortgage refinance on her quest to become debt free, a process which took further time and effort on her part.
While refinancing is one solution, it might not be right for every Minnesotan who is struggling with debt. For example, those who have missed three or more home payments and have experienced a hardship that contributed to this issue may be better served by a loan modification.
At Atlas Law Firm, a Minneapolis bankruptcy attorney can meet with you to decide if a loan modification, bankruptcy or alternative option is the best way for you to get out of debt. Call for more information today.