Is Restructuring Your Home Loan a Good Idea?

Is Restructuring Your Home Loan a Good Idea?

When you take out a homeowner loan, it’s very much based on your current income and your past credit history. However, nobody knows what is around the corner and sometimes people’s circumstances change in such a way that a previously manageable monthly home loan repayment suddenly becomes unaffordable, putting your mortgage and your home at risk.


If this happens to you, one of the options that your financial adviser may suggest is to consider restricting your home loan. Loan restructuring is a process during which borrowers who are facing financial distress can renegotiate and modify the terms of their homeowner loan with the lender in order to avoid default. In doing so, the borrowers can continue to pay off their outstanding debt while regaining a degree of flexibility with which to restore their financial stability.   


Home Loan Restructure

There are several different types of debt restructuring. Exactly which options are available to you will depend on your specific circumstances and will be agreed upon with your lender. Your home loan restructure may involve:


  • Extending the repayment term

  • Reducing the interest rate

  • Reducing the remaining balance

  • Bringing a past-due account current and adding the unpaid amount back to the principal balance


We strongly recommend that you consult with your financial advisor and/or lender to determine which option offers you the greatest ability to manage your repayments for the foreseeable future.


Will Restructuring A Home Loan Affect My Credit Rating?

Unfortunately, restructuring a home loan is likely to have a negative impact on your credit score. For this reason, it is usually only considered as a last resort to help borrowers to retain their homes rather than defaulting.


Borrowing Money in the Future

In most cases, opting for loan restricting will stretch your loan tenure and this means that your loan borrowing capacity will almost certainly be limited until you clear the restructured loan. For this reason, it’s a good idea to make sure that you won’t have any big financing requirements during the extended loan tenure.


Home Loan Recasting

It’s important to remember that not all home loan restructures are due to affordability. Some people may find that they are suddenly in receipt of a large sum of money that they wish to use to make a lump-sum payment towards the principal balance of their mortgage. Doing so will require your lender to recast the loan, reducing it to reflect the new balance.


Recasting your mortgage will reduce your monthly payments, as well as the amount of interest you will pay over the lifetime of the loan. However, it won’t affect the terms of your homeowner loan or the interest rate that you committed to. Your lender will also likely charge a small fee (no more than several hundred dollars) for recasting your homeowner loan.




If you would like to find out more about home loan restructuring, visit Blue Horizon Realty and Lending, INC in San Diego, CA. Call (760) 237-4092 to schedule an appointment today.

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