If you are considering a mortgage modification and also have a home equity line of credit (HELOC), understand that a mod would also affect your second mortgage.

A mod could (will!) decrease the amount you can borrow

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Most HELOCs contain provisions that allow lenders to curtail the amount you can borrow if your property value drops. If you want a loan modification because your property value has dropped, getting a mortgage modification on your first mortgage will definitely bring this fact to the attention of your second mortgage holder. Bye bye credit line.

Revised mortgage terms

In most cases, the lender on your first mortgage is going to want to see the second mortgage lender making some concessions before it takes a loss on your loan. After all, if you went into foreclosure, your second mortgage could prove worthless unless there is enough home equity to satisfy both liens. So your first mortgage lender will almost certainly drag your second mortgage lender into the negotiations.

The tap will be turned off

Amazingly, many who miss payments on their first mortgages continue to make them on their HELOCs to keep access to those funds. Most people who seek out a loan modification are already in financial trouble and second mortgage lenders know this. They will prohibit you from pulling out any more cash.

If you have a home equity line of credit and are considering getting a loan modification,consider the value of that credit line. For example, if you rely on it to provide routine cash flow for a business, requesting a mortgage modification could put you out of work. If you have been able to make your mortgage payments, be very cautious about asking either of your lenders for help because there are likely to be uncomfortable consequences.