Here's What Happens When Your Mortgage Is Modified

Many people sign a mortgage feeling confident in their ability to pay it back when they're supposed to. But sometimes, life happens. You might lose your job and find yourself forced to take another at a lower salary. Or, your expenses might increase due to medical issues or having children.

If you've reached the point where you're struggling to keep up with your monthly mortgage payments, you're probably aware that falling behind is not a good solution. That could eventually put you at risk of losing your home.

Of course, foreclosure may be more avoidable these days because U.S. homeowners are sitting on a whopping $30 trillion in home equity. With property values so high, you may be in a position to simply sell your home and walk away clean rather than go through the process of foreclosure and face the credit score damage that ensues.

But what if you don't want to sell your home? What if you want to somehow find a way to stay put?

That may be possible via a process called mortgage modification. And it's a route your mortgage lender may be surprisingly open to.

When refinancing isn't really an option

Homeowners who find themselves struggling to keep up with their monthly mortgage payments can often turn to refinancing as a solution. This involves swapping an existing mortgage for a brand-new one -- ideally, at a lower rate that results in lower payments.

But right now, mortgage rates are so high that refinancing won't be a cost-effective solution for most borrowers. That's why you may want to look at loan modification instead.

Mortgage modification is the process of working with your lender to change the terms of your existing home loan agreement. To be clear, you're not getting a new mortgage -- you're simply tweaking an existing one.

How does that help make your home more affordable? You might currently be on the hook for $1,200 monthly mortgage payments based on your current repayment schedule. Your lender might agree to extend your repayment period, thereby reducing your monthly mortgage payments to $900 apiece. That's an amount you may be able to afford.

Why mortgage modification is something lenders agree to

Clearly, mortgage modification could be helpful to you as a homeowner. But what's in it for lenders?

Well, the quick answer is that mortgage lenders have one goal -- to get repaid. If changing the terms of your mortgage allows that to happen, that's really the main thing your lender cares about. And while your lender might be accepting a lower monthly payment by modifying your loan, it would no doubt rather get paid $900 a month than not get any of the $1,200 you're supposed to be sending in.

All told, loan modification is a route worth exploring when your home becomes hard to afford. Have that conversation with your lender before you start missing mortgage payments so you don't have to worry about credit score damage or, worse yet, run the risk of foreclosure.