What is a loan modification?

A loan modification involves making changes to the terms of an existing loan agreement. This process is often initiated when a borrower is struggling to meet their current loan payments, and it can include adjustments to interest rates, loan duration, or monthly payment amounts. The primary goal of a loan modification is to make the loan more affordable for the borrower, thereby helping them avoid default or foreclosure.

In this context, the focus is on the fact that a loan modification is not about taking out a new loan or incurring additional debt, but rather about adapting the existing loan to better suit the borrower’s financial situation. This is particularly important in the mortgage industry, as modifications can help stabilize the borrower’s financial status and maintain their homeownership.