Mortgage modifications are arrangements agreed to by the lender that are outside of the contractual mortgage agreement, in instances where the borrower experiences unique circumstances or hardship.

An example of a mortgage modification is a loan forbearance, which is when a lender agrees to let the borrower temporarily stop payments for an agreed-upon span of time, before resuming payments with an added repayment stipulation for the time spent not paying.

Through Fannie Mae, the Home Affordable Modification Program (HAMP) seeks to reduce a mortgager’s monthly payments to 31% of his or her gross monthly income. HAMPs are available to lower-income households. Somewhere between 31% and 41% tends to be the range for modifications allowed by banks. Borrowers may have to provide letter and documentation proving a hardship.

Modifications are generally more short-term, temporary changes as opposed to a fully refinanced arrangement, which would have a new contract. Refinancing arrangements might lower monthly payments and extend the term of the loan out to 40 years. Modifications might lower the payment for a period of time and extend the length of the term by a year or two.

What is a Mortgage Forbearance Agreement?
What is Mortgage Refinancing?