Loan Modification

AAA

DEFINITION of 'Loan Modification'

A modification to an existing loan made by a lender in response to a borrower's long-term inability to repay the loan. Loan modifications typically involve a reduction in the interest rate on the loan, an extension of the length of the term of the loan, a different type of loan or any combination of the three. A lender might be open to modifying a loan because the cost of doing so is less than the cost of default.

INVESTOPEDIA EXPLAINS 'Loan Modification'

A loan modification agreement is different from a forbearance agreement. A forbearance agreement provides short-term relief for borrowers who have temporary financial problems, while a loan modification agreement is a long-term solution for borrowers who will never be able to repay an existing loan.

RELATED TERMS
  1. Forbearance

    A temporary postponement of mortgage payments.
  2. Foreclosure - FCL

    A situation in which a homeowner is unable to make principal ...
  3. Delinquent Mortgage

    A mortgage for which the borrower has failed to make payments ...
  4. Eurosclerosis

    A term introduced by German economist Herbert Giersch referring ...
  5. Heatmap

    A visual representation of data using colors. A heatmap can be ...
  6. Hope Now Alliance

    An initiative launched in 2007 to combat the rising tide of foreclosures ...
Related Articles
  1. How Interest Rates Affect The Housing ...
    Economics

    How Interest Rates Affect The Housing ...

  2. Understanding Your Mortgage
    Personal Finance

    Understanding Your Mortgage

  3. Short Sell Your Home To Avoid Foreclosure
    Options & Futures

    Short Sell Your Home To Avoid Foreclosure

  4. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center