Finance
What is 'loan modification' and when might a Hawaii homeowner seek one?
AA. A refinancing of the mortgage to obtain a lower rate
BB. A permanent or temporary change to existing loan terms (interest rate, payment, term) negotiated with the lender, typically to avoid foreclosure when a borrower is in financial distress✓ Correct
CC. A modification of the loan application after approval but before closing
DD. A government-mandated change to mortgage terms for low-income borrowers
Explanation
Loan modification involves the lender permanently or temporarily changing loan terms (reducing interest rate, extending term, deferring or forgiving principal) to help a distressed borrower avoid foreclosure. During Hawaii's COVID-19 pandemic, forbearance and modifications were widely used.
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Key Terms to Know
Adjustable-Rate Mortgage (ARM)
A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Math Concepts
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