Loan Modification

loan mod·i·fi·ca·tion

A loan modification is a permanent change to the terms of a mortgage that makes the loan easier to pay. It’s typically granted if a homeowner faces a long-term loss of income.

Reasons to consider it

  • It may involve extending the number of years you’ll pay the loan.
  • It can adjust your principal balance to include past-due payments and fees.
  • It may lower your interest rate or switch your loan from an adjustable interest rate to a fixed rate.

Reasons to pause

  • Extending the life of your loan means it’ll take you longer to pay it off and will cost you more in interest.
  • You don’t have a choice in which loan modification is given to you. Your servicer will either deny your request for one or offer you the modification that they are allowed to based on their guidelines and your circumstances.
  • Loan servicers make between temporary hardships and long-term/permanent hardships. Typically, servicers will not modify a loan for a borrower experiencing a short-term hardship (other than possibly defer missed payments).

What does it look like?

  • Check your mortgage statement for the contact information for your loan servicer.
  • When you contact your servicer, ask to speak to your loss mitigation officer.
  • Explain why you fell behind. You may be asked to provide financial documents related to your income, taxes, mortgage, savings and other assets, along with other loans, and credit card or student loan debt.
  • It may help to demonstrate that you’ve made a good-faith effort to pay, for example by cutting unnecessary expenses.
  • You may be asked to fill out a Hardship Affidavit to officially document the problems you’re experiencing.
  • Work with your servicer to provide all documents they ask for in a timely manner.
  • Reach out to a housing counselor if you feel like you could using a helping hand with this process.