What Does Loan Modification Mean?
When a borrower requests a loan modification from a lender, it means that he is unable to continue paying his regular mortgage payments to the lender yet wishes to avoid a foreclosure. The lender then has the option to modify the borrower's loan terms to reduce monthly payments or proceed with a foreclosure against the property.
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The Facts
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Loan modification is a process by which a lender alters the terms of a borrower's mortgage loan to lower the monthly payments and make the loan more affordable.
Function
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The function of loan modification is to help borrowers stay in their homes by providing them with affordable monthly payments. Loan modification has a secondary purpose of helping the lender avert expensive foreclosure proceedings.
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Time Frame
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A request for a loan modification can take up to 90 days to be reviewed and approved by a lender. Because of this, it is important that a borrower file his request as soon as he realizes that he will be unable to continue making his mortgage payments.
Features
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Common features of loan modifications can include a temporary low interest rate on the original mortgage loan, the waiving of late fees and penalties by the lender, or the extension of the repayment period on the loan.
Considerations
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Not every struggling homeowner will qualify for inclusion in a loan modification program. Qualifications vary by lender, but a borrower must typically demonstrate that he has a steady income and is able to pay the modified mortgage payments.
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