What is a Mortgage Loan Modification?

A mortgage loan modification is a process where the terms of a mortgage are modified outside of the original terms of the contract agreed to by the lender and borrower.  The borrower can pursue a loan modification by going directly to the mortgage company, or by paying a mortgage loan modification company to represent him.

Pros of Loan Modifications

• Your mortgage payment is reduced either by extending the term, lowering the principal balance, or decreasing the interest rate.

Cons of Loan Modifications

• Your credit history will be damaged.  Most mortgage companies will not lend to you for a certain number of years after going through a loan modification.
• If your principal balance is reduced you will be responsible to pay income taxes on the balance that was reduced.
• If you hire outside help to represent you, they will typically ask you to miss several mortgage payments to start negotiating with the mortgage company.

How Much does a Loan Modification Cost?

• If you represent yourself, the cost is nothing, but you are less likely to get the best terms possible.
• If you choose to use a company, the cost varies from approximately $2,500 to $8,000 depending on the state, your mortgage balance, and if you have a second mortgage.

Who Should Participate in a Loan Modification?

• You may be a good candidate for a loan modification if you cannot afford your current mortgage payment and you have no other options to increase your income.