What Is Loan Modification?

A loan modification is when a permanent change has been made to an existing loan. In most cases, loan modifications are used for those that have fallen behind in their loan payments.

Loan Modification Options

There are roughly three options you can choose from when modifying a loan. One of these terms or multiple terms can be used to reach a reasonable outcome.

1.    Lowering the Interest Rate: The interest rate on the home can be lowered to reflect the current market rate.

2.    Lower the Principal: The principal amount on the home can be lowered as the result of negotiating with the lender. This is often times the hardest option.

3.    Lengthen the Loan Life: Loan modifications also work to lengthen the repayment period and lower monthly payment. This means you will be paying more interest and a higher price for your home in the long run. It is a tradeoff for being able to have a monthly payment you can afford and still remain in your home.

Each of these options works to make a concrete and permanent fix to your problems rather than put a band aid over them. Loan modification can be completed on your own or with the help of a professional.