What Can I Do?
If you received a loan modification because you were struggling with your mortgage, you probably expected the new payment to make your home affordable again.
Then the payment went up.
Maybe it increased a little. Maybe it increased enough that you're looking at your monthly budget wondering how you're supposed to make everything work.
If that sounds familiar, you're not necessarily back where you started—but you do need to understand why your mortgage payment increased and what options you have before you fall too far behind.
A loan modification can change the terms of your mortgage, but it doesn't always mean your payment will stay the same for the life of the loan.
Why Did My Mortgage Payment Increase After a Loan Modification?
There are several reasons a modified mortgage payment can increase.
Your Modified Interest Rate May Be Changing
Some loan modifications include a reduced interest rate that isn't permanent.
Instead, the modification may provide for the interest rate to increase gradually according to the terms of the agreement. When the rate changes, the principal and interest portion of your monthly mortgage payment can increase as well.
If you received your modification several years ago and your payment is now changing, pull out your modification agreement and look at the terms you originally accepted.
The increase may have been built into the modification from the beginning.
Your Property Taxes or Homeowners Insurance Increased
Even if the principal and interest portion of your mortgage hasn't changed, your total payment can increase because of your escrow account.
Higher property taxes, homeowners insurance premiums or an escrow shortage can cause the servicer to increase the amount collected each month.
This is especially important for California homeowners because insurance costs have become a much bigger part of the affordability equation in recent years.
Look carefully at your mortgage statement to determine which part of your payment actually increased.
An Escrow Shortage May Be Added to Your Payment
Your mortgage servicer periodically reviews the amount being collected for taxes and insurance.
If there isn't enough money in the escrow account to cover those expenses, you may have an escrow shortage.
Depending on the circumstances, you may be given the option to pay the shortage or have some or all of it incorporated into future monthly payments.
That can make the payment jump even though the underlying mortgage terms haven't changed.
First, Find Out Exactly Why the Payment Went Up
Before deciding what to do, get the numbers.
Compare your previous mortgage statement with the new one and determine whether the increase came from:
- principal and interest,
- a changing interest rate,
- property taxes,
- homeowners insurance,
- an escrow shortage, or
- another adjustment by your mortgage servicer.
Then review your original loan modification agreement.
If something doesn't make sense, contact your mortgage servicer and ask for an explanation of the payment calculation.
You can't evaluate your options until you know whether you're dealing with a temporary escrow issue, an insurance increase, a scheduled change in the modification or a larger affordability problem.
What If I Can Still Make the New Payment?
If the increase is manageable, this may simply be a good time to review your mortgage and household expenses.
But don't look only at whether you can make this month's payment.
Ask a more important question:
Is this payment realistically sustainable?
If paying the mortgage means repeatedly draining savings, relying on credit cards, postponing other essential expenses or hoping nothing else goes wrong, the problem may be larger than the payment increase itself.
You don't necessarily need to sell your home because your payment increased.
But you also don't want to wait until you've exhausted your savings before looking at your alternatives.
What If I Can't Afford the New Mortgage Payment?
This is where timing matters.
If you know the new payment isn't sustainable, investigate your options before missing multiple payments whenever possible.
Depending on your circumstances, those options could include discussing available loss-mitigation alternatives with your mortgage servicer, reviewing whether refinancing is feasible, selling the property if you have sufficient equity, or considering a short sale if the mortgage balance and selling expenses exceed what the property can reasonably sell for.
The right option depends on your loan, property value, financial circumstances and long-term plans.
And sometimes the answer isn't another mortgage workout.
Sometimes the question becomes whether keeping the house still makes financial sense.
Can I Sell My House After a Loan Modification?
Generally, having modified your mortgage does not by itself mean you can never sell your home.
However, you need to understand everything that may need to be repaid when the property is sold.
Depending on the modification or other assistance you received, there may be amounts that don't appear obvious from simply looking at your current principal balance.
That's why obtaining current payoff information and reviewing the modification documents can be important before estimating how much equity you actually have.
If the expected sale price is enough to cover the mortgage, other liens and selling expenses, you may be able to sell through a traditional sale.
If it isn't, a short sale may be one option worth investigating.
What If I Owe More Than My Home Is Worth?
Don't assume you know the answer based solely on an online home-value estimate or the balance shown on your mortgage statement.
There are several numbers that matter:
Probable market value
What is the property realistically likely to sell for in today's market?
Mortgage payoff
What will actually be required to satisfy the mortgage?
Other liens or obligations
Are there additional loans, assessments or liens attached to the property?
Selling expenses
What costs will need to be paid through the transaction?
Once those numbers are put together, you can get a much clearer picture of your situation.
If there isn't enough money from a normal sale to satisfy the required obligations, that doesn't automatically mean foreclosure is the only alternative. A short sale may be possible depending on the loan and circumstances.
Don't Wait Until the Problem Becomes an Emergency
One of the biggest advantages you can give yourself is time.
It's much easier to evaluate your choices when you're looking ahead than when you're dealing with missed payments, foreclosure notices and deadlines.
If your modified mortgage payment has increased and you're worried you won't be able to keep up, start gathering information now.
Find your loan modification agreement. Review the new mortgage statement. Request current loan information from your servicer. Get a realistic idea of what your property could sell for.
Then you can make a decision based on actual numbers rather than fear.
You May Have More Than One Option
A mortgage payment increase after a loan modification doesn't automatically mean you need to sell your home.
It also doesn't mean you should keep struggling indefinitely simply because the modification was supposed to solve the problem.
The goal is to determine whether the new payment is sustainable—and if it isn't, understand your alternatives while you still have time to choose among them.
At Midas Realty Group, we work with Southern California homeowners facing complicated mortgage and property situations, including homeowners who have already completed a loan modification and are finding themselves under financial pressure again.
If you're trying to determine whether keeping, selling or short selling your property makes the most sense, we can help you look at the real estate side of the equation so you can make an informed decision.
This information is for general educational purposes and is not legal, tax or financial advice. Foreclosure and loss-mitigation situations can involve important deadlines and individual circumstances. Consider consulting an appropriate attorney, HUD-approved housing counselor, tax professional or other qualified adviser when needed.
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