A loan modification is a change made to the terms of an existing loan by a lender to help those having problems making payments by reducing interest rates, monthly payments, or principal balances. Loan modifications are a long-term financial relief option for homeowners who can’t make their mortgage payments. The modification can reduce the monthly payment to an amount the borrower can afford, and it may involve extending the number of years to repay the loan, reducing the interest rate, and/or forbearing or reducing the principal balance. Loan modifications have been practiced in the United States since the 1930s, and they were used during the Great Depression to reduce levels of loan foreclosures.

It is important to note that modification programs may negatively impact the borrowers credit score. Lenders have no obligation to accept a request for a modification or to renegotiate the principal, and getting a modification is usually more difficult than refinancing. Successful applicants typically are represented by legal or other professional counsel. Every lender and investor in the loan has their own standards when it comes to who qualifies for a modification and what types of modifications they offer.

In summary, a loan modification is a change made to the terms of an existing loan to help those having problems making payments. It can reduce the monthly payment to an amount the borrower can afford, and it may involve extending the number of years to repay the loan, reducing the interest rate, and/or forbearing or reducing the principal balance. However, modification programs may negatively impact the borrowers credit score, and lenders have no obligation to accept a request for a modification or to renegotiate the principal.