Loan Modifications 101

A traditional loan modification is an agreement between you and your mortgage company to change the original terms of your mortgage. For example, a loan modification could allow you to add late payments to the loan balance, lower your monthly payment, lower your interest rate, change your interest rate from a variable rate to a fixed rate, and/or extend the number of years you have to pay your mortgage. Modifying your loan with new, more favorable terms can save you thousands over the life of your loan. If you’re struggling and need help, a loan modification could be the solution you’re looking for.

Benefits of a loan modification

Modifying your mortgage has several substantial benefits. The main benefits of a loan modification are:

1. Avoid foreclosure. A modification helps you avoid foreclosure and stay in your home by resolving your delinquency and bringing your mortgage back current.
2. Lower mortgage payment.With a loan modification, you can modify the terms of your original mortgage, often lowering your monthly payment amount, to make your mortgage more affordable and sustainable.
3. Lower interest rate.With a loan modification, you can take advantage of today’s historically low interest rates, saving thousands of dollars over the life of your loan.
4. Fixed interest rate.If you currently have an adjustable rate, a loan modification can give you a fixed interest rate at today’s low rates, which could save you thousands of dollars over the life of your loan.
5. Sorry main.Under a loan modification, your mortgage company may be willing to reduce the amount you owe on your mortgage to help lower your payments so you can continue to pay your mortgage.
6. Rebuild your credit.A loan modification is much less damaging to your credit score than a foreclosure and resolves any existing mortgage delinquencies so your credit can start rebuilding right away.

Eligibility requirements to receive a loan modification

Requirements to receive a loan modification vary from lender to lender. In general, you must be experiencing a financial hardship that has caused you, or will soon cause you, to fall behind on your mortgage. Contrary to popular belief, you do not have to be already behind on your mortgage to qualify for a loan modification.

You will also be asked to fill out an application that will take into account your income, assets, and expenses. The lender will review your application to determine if they can offer you a loan modification. If you’re not eligible for a loan modification, don’t worry, there are other mortgage assistance programs you may qualify for.