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Some loan modifications face rate increase

With the five-year anniversary of the federal government’s Home Affordable Modification Program coming up, homeowners who received loan modifications through the program should expect to face a mortgage-rate increase soon.

Rates will rise in increments of up to 1 percent a year.

When the loans were modified, the interest rate was reduced to a below-market rate – as low as 2 percent – for a set period of time, generally five years, according to Laura Haverty of Fannie Mae.

The interest rate will increase annually by a maximum of 1 percent per year until it reaches a “cap” rate that was set as part of the modification agreement. Once the interest rate reaches that cap period, it will remain fixed for the life of the loan.

The payment changes are set to take place to many borrower accounts by April 1.

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