What is a Loan Modification?

A loan modification or note modification is an agreement made between a lender and homeowner whereas the rate and terms of the original loan are restructured without the process of full refinancing.

This term has been getting a lot of attention lately and rightfully so. With millions of homeowners behind in payments or losing their homes due to adjustable rate mortgages and no way to refinance out of them, loan modifications may be the only way to assist struggling homeowners.

A loan modification is used when your lender modifies your current mortgage (same loan you have, only changes are made to the note) in order to make your mortgage more affordable. A reduction in your interest rate, balance of loan, delinquent fees owed, term of loan and reduction in your monthly payment can be made by the lender. In the past this was only used when a borrower was delinquent, but now we will see it being used before the homeowner becomes delinquent. Loan modification will be the hottest term and the best way to help homeowners avoid foreclosure.