Loan Modification Glossary

A mortgage with an interest rate that can change periodically based on market conditions. The rate is typically fixed for an initial period, then adjusts at set intervals.

The process of paying off a loan through regular payments over time. Each payment covers both interest and principal, with the proportion shifting toward principal as the loan ages.

An arrangement where the homeowner voluntarily transfers ownership of the property to the lender to avoid foreclosure. This may result in less credit damage than foreclosure.

Failure to meet the legal obligations of a loan, typically by missing payments. Default can lead to foreclosure proceedings.

An account held by the lender to pay property taxes and insurance on your behalf. A portion of each mortgage payment goes into this account.

A temporary pause or reduction in mortgage payments granted by the lender during financial hardship. Unlike modification, forbearance is temporary and missed payments must eventually be repaid.

The legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments. This typically results in the homeowner losing the property.

A significant change in circumstances that affects your ability to make mortgage payments, such as job loss, illness, divorce, or unexpected expenses.

A written statement explaining the circumstances that caused your financial difficulty and why you're requesting assistance. This is a key document in the modification application.

A housing counselor certified by the U.S. Department of Housing and Urban Development to provide free or low-cost guidance on mortgage issues, including loan modifications.

The percentage charged by the lender for borrowing money. Reducing the interest rate is one common way modifications lower monthly payments.

A permanent change to the original terms of a mortgage, such as the interest rate, loan term, or principal balance, to make payments more affordable.

The company that handles the day-to-day management of your mortgage, including collecting payments, managing escrow, and handling loss mitigation requests. May be different from your original lender.

The length of time you have to repay the loan. Extending the term can lower monthly payments but typically increases total interest paid over the life of the loan.

The process lenders use to work with borrowers who are struggling to make payments. This includes various options like modifications, forbearance, and repayment plans.

The amount of money you originally borrowed, not including interest. In some modifications, a portion of principal may be deferred or forgiven.

Moving a portion of the loan principal to the end of the loan term, where it becomes due as a balloon payment or upon sale/refinance of the property.

A decrease in the actual amount you owe on your mortgage. This is less common than other modification terms but can significantly reduce payments.

Replacing your current mortgage with a new loan, often with better terms. Unlike modification, this typically requires good credit and equity in your home.

An agreement to pay back missed payments over time by adding extra amounts to your regular monthly payment.

Selling your home for less than what you owe on the mortgage, with the lender's approval. This is an alternative to foreclosure when you can't afford the home.

A dedicated representative at your servicer assigned to handle your modification case. Federal rules require servicers to provide this for loss mitigation requests.

A temporary period (usually 3-4 months) where you make reduced payments to prove you can afford the proposed modified terms before they become permanent.

When you owe more on your mortgage than your home is currently worth. Also called being "upside down" on your mortgage.