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.
Interest rate reduction - The lender lowers your interest rate to make your payment more affordable.
Lengthening the amortization period - The lender lengthens the repayment period from 30 year to 40 years.
Interest only payment - The lender reduces your monthly payment by giving you an interest only loan usually for three, five or seven years
Forbearance Agreement - A forbearance allows the borrower to put a temporary hold on his or her monthly payments, usually for up to one year.
Forbearance is common for unemployed people or where the lender wants to wait and see that you make three or four continuous payments before a full loan modification.
Recapitalization of past due payments - The lender modifies the loan balance to get you current so that you don't have any late penalties or fees or mortgage late payments reported anymore.