A loan modification is a change to the terms of an existing loan made by the lender to make the payments more affordable for the borrower. Loan modifications are often used when a borrower is experiencing financial hardship and is unable to make the required mortgage payments.
 

There are several types of loan modifications that can be made, including reducing the interest rate, extending the loan term, and changing the type of loan. For example, a borrower who has an adjustable-rate mortgage (ARM) that has reset to a higher rate may be able to refinance the loan into a fixed-rate mortgage to reduce the monthly payments.

To qualify for a loan modification, a borrower typically needs to demonstrate financial hardship and provide documentation such as proof of income and expenses. The lender will review the borrower’s financial situation and determine if a loan modification is possible. If the lender agrees to the modification, the borrower will be required to sign a new loan agreement with the modified terms.
 

Loan modifications can be a helpful option for borrowers who are struggling to make their mortgage payments but want to keep their home. However, they may also have negative consequences, such as an increase in the total amount of interest paid over the life of the loan. It’s important for borrowers to carefully consider all their options and understand the potential consequences before agreeing to a loan modification.