Loan modification is a modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. A loan modification mostly involves reducing the interest rate of a loan. The interest rates of loans are usually the downfall to the high number of unpaid loans. There can also be an extension to the length of the term loan. A loan may be termed to last for 12 months, a loan modification will allow them to move to 24 months. This will change the amount due each month to a lower payment, or it will just add more interest and more payments. The last way it can be modified is if you get a different loan with different terms and agreements. You may also get a combination of the three.
A loan modification is different from other loans. This is an agreement for a long-term solution for the borrowers who will never be able to repay an existing loan. Basically, for homeowners who have taken out a loan for a house will sometimes apply for a loan modification. This will give them a monthly payment, like paying rent on an apartment, so that they will be able to keep their house. Many times, the homes are willed to a close relative, friend, or child. They will then take over payments and in their lifetime, the home may be paid off.
Basically, a loan modification is just another payment method that is supposed to help you prepare for owning homes and staying out of debt.