What Is the Difference Between Loan Modification & Loan Restructure?

Loan restructuring is a broad term referring to a number of changes you can make on your loan. Loan modification more narrowly defines changes to a monthly payment on a contract.

Loan Restructuring Overview

Loan restructuring can include consolidation, re-amortization or even write down of a debt. Restructuring often occurs if there is a change in the market or the borrower's needs, and the lender agrees to change a contract accordingly.

Loan Restructuring Example

You borrowed $250,000 to purchase a home initially valued at $250,000. In one year, the home's value drops to $200,000 due to changes in the market outside your control. The lender agrees to write down your debt to $225,000 to help protect you from foreclosure.

Loan Modification Overview

Modification is generally used to change the terms of a monthly payment alone. A borrower can ask for a reduction in payment, making the loan longer, or an increase in payment to pay off a loan faster.

Loan Modification Example

You have four years left on an auto loan with $200 payments each month. You receive a big raise, and you can now afford $400 a month. The lender agrees to the new payment, and you pay off the loan in two years.

Loan Restructuring vs. Loan Modification

"Loan restructuring" can be used to describe a wide array of adjustments to a loan. "Modification" more narrowly defines changes to a monthly payment. If you are looking for this change alone, use "modification," as it is typically easier to pursue than restructuring.

References

• US Dept. of Rural Development: Loan Restructuring PDF
• HUD.gov: Loan Modification FAQ