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.

BREAKING DOWN '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.

  1. Loan Modification Specialist

    A mortgage specialist who deals specifically with loan modifications. ...
  2. Renegotiated Loan

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  3. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  4. Term Loan

    A loan from a bank for a specific amount that has a specified ...
  5. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  6. Origination

    Origination is the process of creating a home loan or mortgage.
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