Loan modification can be done to any type of loan, but it most commonly occurs in relation to house mortgages. Loan modification occurs when there is a change made to the original terms of the loan that is agreed to by both the lender and borrower. Any change such as a change in the interest rate (can be a change in the rate or a move from a floating to a fixed rate), the lengthening of the term of the loan and a reduction in the initial principal can constitute a loan modification.
Loan modifications are usually undertaken by both parties involved when the borrower is unable to remain current on the original agreed payment instalments. In the wake of the sub-prime mortgage crisis that occurred in the U.S.A. there have been many programs started by the government to help people modify their mortgages so that they can keep on top of payments and don’t suffer foreclosure of their homes. These Federal programs are usually made up of free advice from non-profit experienced counsellors that have been approved by the Department of Housing and Urban Development. These counsellors can not only advise you on your best course of action, but also set you down the right path to keeping your payments current and keep your house your own. The loan modification program will vary from person to person, depending on whether they are current on their payments, late on their payments, in default, in bankruptcy or possibly in foreclosure. As loan modifications have to be agreed upon by both parties, they must be beneficial for both the borrower and the lender. This is usually because the lender sometimes gets more total payment and the borrower doesn’t have to default on their loan or mortgage, resulting in foreclosure in the latter instance.
