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The amount of money that we borrow and we must repay is called the principal amount. The principal sum or amount is exclusive of the fees, charges and the interest specified. The principal amount also fluctuates depending upon the kind of loan that you have availed from a bank or financial institution. The principal also determines the monthly payments you are entitled to pay.

Principal balance reduction and principal forbearance

Thousands have lost jobs owing to the sudden impact of the economic downturn. This sudden financial crisis has resulted in their inability to pay monthly payments and interest rates. In such a scenario, both borrowers and lenders are put in a precarious position. To sort this problem, lenders relax their rules and regulations and offer help like principal reduction to their customers, with the intent of getting back at least the principal amount.

Principal balance reductions are done by a few organizations rarely. The decision regarding reducing the principal solely lies at the hands of the lender. Principal balance reduction is done with the purpose of making the borrower repay the loan in convenient and smaller installments. The lenders offer principal balance reduction when the borrowers face the danger of foreclosure. The lenders reduce the principal amount permanently for the sake of the customers.

Principal forbearance is another term closely associated with principal reduction and both are often confused. Principal forbearance is considered to be more complex than principal reduction. Principal forbearance offers temporary reduction of the principal. For a short span of time, your principal is reduced by the lender. Despite the reduction, you are obliged to pay the full amount and the amount reduced temporarily.

Loan modification program

Economic recession has resulted in severe financial crunch and people are confronting foreclosures. For saving customers from foreclosures, banks and financial institutions have introduced loan modification programs. The loan modification programs are exclusively planned for the reduction of principal of loans. The applicants who fulfill certain criteria and guidelines are eligible to avail principal reduction from lenders.

The loan modification program that offers principal reduction is not offered to all kinds of loans. It is a privilege offered to borrowers of only certain kind of loans. The program comes as a relief during the tough times, when people find it difficult to even afford a decent home. The program offers late fees and penalty waiver, interest rates reduction and principal reduction on select loans.

The loan modification strategy is offered by the banks to facilitate repayment of the principal amount under any circumstance. The lenders are ready to extend the time limit stipulated for the repayment of the loans. They even allow the borrower to get another type of loan that can be repaid conveniently.

For mortgage loans, the lenders offer penalty waiver, reduction of the monthly installments after considering the customerís income and many more. Personal loan borrowers can repay the principal amount within a few months time or at one go. Lenders are focused on getting back the principal sum even if it means forgoing the interest rates.

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