Help for Those Struggling To Pay the Mortgage

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By Pat Mertz Esswein

Kiplinger's Personal Finance
Sunday, July 5, 2009

If you can't afford your monthly mortgage payment and you can't refinance, a loan modification may keep you in your home.

The Making Home Affordable program, announced by the Obama administration in March, aims to reduce borrowers' monthly payments to no more than 31 percent of their pretax income.

But only homeowners in very specific circumstances qualify. Candidates must live in their homes. They can already be behind in their payments or they must prove that they stand at the threshold of default because of financial hardship. The balance of their first mortgage cannot exceed $729,750, and they must make their new payment for a three-month trial period in order to qualify.

For those who qualify, though, the savings can be dramatic. Say a homeowner has a $320,000 mortgage but can't make the monthly payment of $2,023 (excluding taxes and insurance). Home Affordable could cut the payment to $1,254, with an interest rate of 2 percent.

And there's an additional benefit: Although the program lasts for just five years, in each of those years the loan principal is reduced by $1,000 -- as long as the homeowner stays current on the payments. After the five years are up, the lender will increase the interest rate by one percentage point a year until it reaches the prevailing rate. (For details, visit http://www.makinghomeaffordable.gov.)