Loan modification occurs when the terms of a loan are altered from what was originally agreed upon by the borrower and lender. Any change to the terms will constitute a modification. However, the most common modifications are an extension of the loan term, a reduction in the interest rate (often by changing how it is calculated) and a reduction in the initial principal used to calculate repayments and interest. Any loan may be modified, whether it’s a standard bank loan or a home mortgage.
Make sure that you have a thought through strategy before approaching your lender to ask for a loan modification, especially with mortgages. Lenders aim to make as much money out of your loan as possible and if they are able to foreclose your house and sell it for a profit, they are less likely to be sympathetic to your request. Before setting up a meeting with your lender, be sure to gather as much evidence to back up your claim that you are financially unable to meet the payments on time as well as any paperwork that is related to the loan. If you can, gather up and go through all the correspondence that has taken place between you and your lender, preferably in their original envelopes – the postmarks may be instrumental in getting your loan’s terms changed. Evidence of other financial obligations such as bills or lack of a steady income can also help your case. Finally, most successful applications are helped along by producing proof that you are in a situation of hardship such as a divorce or separation, the loss of a spouse or sole/joint breadwinner or job relocation. If you are successful in getting your loan modified, be sure that your lender isn’t including any administrative charges, late fees or penalties as this is not allowed by Federal mandate.

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