What is a Loan Modification?

Homeowners having financial difficulties may find themselves missing one, two or even months of mortgage payments. Before facing foreclosure, the lender may work with the homeowner to restructure the mortgage to change the terms so that the homeowner can afford the payments. The lender may lower the interest rate, extend the term of the loan, or add the amount of the missed payments into the total amount due on the loan. Often the lender will work out these new terms, and give the homeowner a trial period of three months to determine if they will be able to afford the new terms of the loan. If they are able to do so, the lender may modify the mortgage permanently, giving the homeowner the ability to save their home.