Loan modification by definition: This is a process whereby a homeowner’s mortgage is modified and both lender and homeowner are bound by the new terms. Common loan modifications are lowering the interest rate, reducing the principal balance, ‘fixing’ adjustable interest rates, increasing the loan term as we have outlined below, forgiveness of payment defaults &  outstanding fees, or any combination of these.

Home Loan Modification Type one –  Straight Capitalization Loan Modification

With this type of loan modification, any back interest owing is added back to the loan principal.  The new total  loan balance is amortized using the same conditions and loan terms of the existing mortgage.  With this type of loan modification the payments are going to be higher than the original loan, so this type of loan modification is used to bring any delinquent interest current.  In order to qualify for a straight capitalization loan modification the borrower would have to prove that they would be able meet the higher monthly payments.
Home Loan Modification Type 2 – Loan Modification with Term Extension

This type of loan modification extends the loan term (how long you have to pay the loan off). This will result in lower monthly payments and bring some immediate relief to the borrower.  With this type of loan modification, the term of the loan is only extended to whatever the length of the original term was.  So if the original loan was for 30 years, the term extension could then be extended for up to 30 years.