Here's What Happens When You Modify a Mortgage

There may come a point when your mortgage loan becomes difficult to keep up with. That could happen when your income shrinks or when other bills of yours increase. It may even be that you're having difficulty paying your mortgage because you've been hit with a string of home repairs, a property tax increase, or another bill related to your home itself.

Refinancing a mortgage can, in some cases, be a good solution when your mortgage is no longer affordable. Of course, based on where mortgage rates are sitting today, refinancing may not pay for many borrowers. But during periods when mortgage rates are more attractive, refinancing could be a good way to lower the payments on your mortgage.

However, in some cases, modifying a mortgage could achieve the same goal and can be an easier route to take. Here's why.

What is mortgage modification?

When you modify a mortgage, you don't get a new loan the same way you do with a refinance. Rather, what you're doing is simply changing the terms of your existing mortgage.

Often, mortgage modification will come into play when you're struggling to keep up with your payments. What'll commonly happen is that your lender will agree to extend your loan repayment period. Doing so will usually lower your individual monthly payments so each one is more affordable for you.

Why mortgage modification may be preferable to a refinance

Refinancing a mortgage can lower your monthly payments by virtue of a lower interest rate on your loan. You can also refinance from a shorter-term loan to a longer-term one -- for example, go from a 15-year mortgage to a 30-year loan. That, too, should result in lower payments.

A big reason mortgage modification might make more sense for some borrowers is that you're not changing the interest rate on your loan. So at times like this, when borrowing rates are expensive, sticking with the same loan can be preferable.

Plus, refinancing a mortgage is a process. You have to apply for a new loan and hope your application is approved. If your credit score isn't all that great, you might get rejected. In fact, it generally takes a credit score of 620 to qualify to refinance a conventional mortgage. So if your score isn't so great, mortgage modification may be a better option because you're not applying for a new loan.

How to modify a mortgage

Modifying your mortgage is generally a matter of reaching out to your lender or loan servicer and discussing your financial situation. If you're worried about keeping up with your monthly payments, it's important to see if mortgage modification is an option for you.

Falling behind on your mortgage could have serious consequences. At a minimum, it can result in major credit score damage. And if you fall too far behind, you could risk losing your home altogether. Rather than run that risk, it pays to reach out to your lender when you find yourself struggling and talk things through.