Changing The Terms of Your Mortgage

A mortgage loan modification, also known as a loan workout, occurs when a lender agrees to change the terms of a mortgage in response to a borrower's long-term inability to repay the loan. These changes may be permanent or temporary and generally involve a reduction in the mortgage interest rate (APR), a loan term extension, and a change in monthly payments. In some cases, lenders may even agree to allow the borrower to skip payments (and add them to the end of the loan) or reduce the total amount of principal due on the loan.

In short, the loan modification is designed to make the mortgage more affordable for the borrower so that foreclosure and bankruptcy can be avoided. In fact the ultimate goal of a loan workout plan is to help borrowers reduce their monthly mortgage payments to 31% of their gross income.

Will a Lender Change Your Mortgage Terms?

Banks and commercial lenders are not known for their charity and goodwill, so why would they agree to do a mortgage loan modification? In addition to government incentives; lenders stand to lose more on a foreclosure versus a loan modification. If a borrower stops making payments and collection attempts have failed, then a lender can either try to repossess the property, write off the loss, or wait till the person declares bankruptcy- in which case the lender will receive virtually nothing. Compared to the alternaive, changing the terms of your mortgage becomes the best option!

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