A mortgage modification involves the reduction of one of the following: the interest rate on the loan, the principal balance of the loan, the term of the loan, or any combination of these. These typically result in a lower payment to the homeowner and a more affordable mortgage.
- Benefit: Reduces the payment a homeowner is required to make on a monthly basis and may reduce the principal balance of the loan
- Drawback: Requires that a homeowner ‘qualify’ for the new payment and will often require full documentation. Lender has to be actively pursuing modifications.