Is Loan Modification A Good Idea?


A loan modification can help if you’re behind on paying a loan, such as a mortgage. Defaulting on a secured loan can result in the loss of your home, car, or other valuable possession. Although refinancing a loan is one possibility that can avoid, for example, foreclosure, it may also be possible to modify your loan.

What Is a Loan Modification?

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With a loan modification, you keep your existing loan, but the lender agrees to changes in its terms. A modified loan may have a lower interest rate. You could even have a variable interest rate converted to a fixed-rate. The length of your term may be extended as well.

A lender will often consider your circumstances to find a solution that helps you pay back the principle. The alternatives, including foreclosure, can be extremely costly not just for you, but your lender or financial institution. You may also face aggressive collections actions.

Should I Consider This Option?

There are specific qualifications if you are considering mortgage modification. The requirements include being delinquent on a loan for at least 60 days, having an imminent danger of default, and demonstrating financial hardship, such as the loss of a job, spouse, or physical or mental capacity to repay the loan.

Generally, you can modify a loan when you have bad credit. Lower payments can help you get back on your feet. As a result, the loan will be stretched out longer. But the paperwork for modifying loans can be complex. The process may be worthwhile in the long run, but to determine if it’s a good idea for you, consider the following:

  • The process takes time: Loan modifications require a lot of paperwork that can be long and frustrating. If your circumstances are bad enough, and you risk losing your home, the process may be worth it. You are most likely to consider this route, with the help of an Orange County bankruptcy attorney, if you’re behind in payments or poor loan terms are hurting your finances.
  • It’s easy to be conned: Scam artists and even entire organizations prey on consumers who are struggling. If your home is foreclosed on, it goes on public record, so con artists have access to your information. You may approach your lender or bank about the situation. But the information provided is available to other companies, which may try to trick you into a financial solution. If any company contacts you, research with the Consumer Financial Protection Bureau to see if it has engaged in illegal activities; otherwise you may be conned into sending money that doesn’t go towards your loan.
  • Your credit: A loan modification may be noted on your credit report. Although the impact isn’t as severe as foreclosure, the process can lower your credit score and affect your eligibility for future loans. Changing your mortgage terms is all about weighing the risks. If your financial circumstances are tough enough, having to pay the loan over a longer period, with more interest, is a better alternative to, for example, losing your home.

Consult a Los Angeles Bankruptcy Attorney Today

OakTree Law provides a range of bankruptcy, debt, and loan modification services in Los Angeles and Orange County. Experienced in real estate and other types of law, our team can educate you on suitable options and assess your financial situation to help make the best decisions. Request a free evaluation online or call 562-219-2979 today to learn more.