What is "loan modification"?

Loan modification refers to a change made to the terms of an existing loan, typically aimed at making the loan more affordable for the borrower. This process may involve altering the interest rate, extending the loan term, or changing payment structures. The objective of a loan modification is to help borrowers who may be struggling to meet their original loan obligations, allowing them to avoid foreclosure and stay in their homes.

The concept of loan modification is particularly relevant in situations where borrowers encounter financial difficulties, as it provides a viable option for retaining their property. This contrasts with refinancing, which entails replacing an existing loan with a new one, often under different terms. In contrast to other options like co-signing or quick sales strategies, loan modification focuses specifically on adjusting an existing loan rather than initiating new mortgages or transactions.