What Is A Mortgage Modification?
A mortgage is actually a contract between a borrower and a lender. The borrower gets cash up front and the lender gets back the loan amount plus interest over time under terms and conditions established in advance.
There are times though when either the borrower or the lender will seek a mortgage modification, a change in the original terms of the loan agreement.
On the borrower’s side, there are several forms of mortgage modification.
- A lower rate.
- A longer loan term.
- Both a lower rate and a longer loan term.
- The waiving of various fees and penalties such as a prepayment penalty.
- A short sale where the lender agrees to allow the sale of the property for an amount that’s less than the debt in full or partial settlement of the loan.
It’s also possible for a lender to want a loan modification. For instance, rather than foreclose a lender might accept a deal where the interest rate or monthly payments actually rise. A lender might extend a loan to avoid foreclosure or a lender might tack missing payment onto the end of a mortgage to, again, avoid foreclosure.
As well, if a lender needs cash, it might agree to the early payment of the loan in exchange for something less than the entire debt. This is called a curtailment.
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