What does a loan modification entail?

A loan modification involves making a permanent change to the terms of a borrower's loan. This can include adjustments to the interest rate, the loan duration, or other terms to help make the loan more manageable for the borrower. Modifications are typically pursued when a borrower is facing financial difficulties and needs relief from their current loan obligations.

Unlike a temporary change, which might only provide short-term relief, or a refinancing option, which involves taking out a new loan to pay off the existing one, a modification directly alters the existing loan agreement to better fit the borrower’s current situation. Additionally, it usually does not involve forgiving any part of the loan, which differentiates it from the concept of partial forgiveness. The purpose of a loan modification is to assist borrowers in maintaining their mortgage payments and avoiding foreclosure.