What Will a Loan Modification Cost You?

Loan modification costs are both financial and personal. On the financial side, fees are assessed by both the initial lender and any third party assisting with the modification. On the personal side, you may find your credit score suffers as a result of the modification. Depending on how you pursue the change, the costs will be different.

Cost of Direct Modification

Modifying your loan directly with your current lender is the least costly option across the board. If you are able to do so without consulting a financial adviser or third party, you will save a tremendous amount on fees. The lender will likely assess very little in origination or modification fees, if any, in addition to these savings. In order to succeed with a direct modification, you will have to convince the lender it is in their best interest. One way to do this is to write a hardship letter explaining your loan may go into default without the modification. Another method is to provide market information validating a claim your loan is not competitive with the going rates.

Your credit score will not suffer as a result of a direct modification. The loan will not be closed, and you will still have the opportunity to close the loan in the future according to the new terms of the contract. For all of these reasons, a direct modification is the least costly option.

Cost of Third Party Modification

If you do not succeed in negotiating directly with the lender, you may need to contact an attorney or adviser to handle the process for you. As these individuals are more understanding of the factors affecting your loan, they can often better argue for your best interest. It is also possible that some lenders will simply take these professionals more seriously than your claims, eliciting a prompter response. In this case, you will be charged fees from the third party, usually determined by the size of the loan you are modifying. Bigger projects require bigger fees. You will still avoid the majority of the credit cost, though, protecting you from future damage due to the modification.

Cost of Closing a Loan Early

A final option should be pursued if you cannot get the lender to alter your existing loan. In this case, you will need to contact an outside lender. This outside lender can provide you a loan in a sum large enough to pay off the settlement quote for your current loan. Depending on how well you negotiate, this sum may either be larger or smaller than the total you have remaining on your loan.

The new loan you assume should have terms more favorable to your current position. This option costs the most on both fronts. First, you have to take a second loan in order to pay off the first, paying loan origination fees on that loan at the same time you pay prepayment fees to your current lender. Second, you will have to take a credit hit if you pursue this option as you are closing your initial loan in a matter unsatisfactory to the lender.