Modifying your mortgage is simply a process in which the terms of your mortgage are modified outside the terms of the original contract you agreed to with your lender. Generally any loan can be modified.
Mortgages can modified to benefit the buyer in several ways:
- By reducing interest rate or changing from a floating to a fixed rate, or by computing the floating rate differently.
- By reducing the principal.
- By reducing the monthly payment.
- By extending the length of the loan term.
- By capping the amount of the monthly payment to a percentage of the household income
- By the mortgage forbearance program.
The programs will vary depending on the current state of the loan. The loan can be current, in default, late, in foreclosure, or in bankruptcy at the time the application for the modification is made.
Lenders are motivated to make modifications with the expectation that the homeowner can make lower payments and thus the payments will be more current and the proceeds will be more valuable than a foreclosure sale.
The federal government can either entice a lender to structure a mortgage modification for a homeowner or make a mandatory mortgage modification which meets the criteria in regards to the homeowner, the property and the payment history.