A change to your existing loan terms negotiated directly with your lender, usually to make payments more affordable when you're struggling. Different from refinancing.
A loan modification is a negotiated change to the terms of your existing mortgage — typically to make payments more affordable when you've fallen behind or are about to. Common modifications include lowering the interest rate, extending the loan term, deferring a portion of the principal, or capitalizing missed payments into the loan balance.
Unlike a refinance, a modification doesn't create a new loan. The lender (or loan servicer) agrees to change the existing one. You don't pay closing costs, but the process can take months and approval isn't guaranteed.
Modifications are typically only available to borrowers facing genuine hardship: job loss, divorce, illness, etc. You'll need to document the hardship and show that the modified payment is affordable for your current situation.
Example
You lose your job and miss two mortgage payments. You apply for a loan modification through your servicer, documenting the job loss and current reduced income. The lender approves a modification that reduces your rate from 7% to 5.5% and re-amortizes the loan over a longer term — keeping you in the home.
Also known as
mortgage modification, loan mod, mortgage workout
Source:
CFPB