A process where the terms of a mortgage are modified outside the original terms of the contract agreed to by the lender and borrower (i.e. mortgagor and mortgagee). In general, any loan can be modified to the benefit of the borrower in one or more of the following ways:
- Reduction in interest rate, or a change from a floating to a fixed rate, or in how the floating rate is computed
- Reduction in principal
- Reduction in late fees or other penalties
- Lengthening in loan terms
- Capping the monthly payment to a percentage of household income
The borrower can be current, late, in default, in bankruptcy, or in foreclosure at the time the application for modification is made. The programs available will vary accordingly.