Understanding Loan Modification Trial Periods: What to Expect

A loan modification is a permanent change to the terms of your loan. The modification can reduce your monthly payment by such measures as lowering the interest rate, extending the length of the loan and forgiving part of the principal. Before a permanent modification is granted, you are required to complete a trial modification under the Home Affordable Modification Program. During the trial period, you must prove your ability to pay the new mortgage payment.

Trial Period Requirements

If you are applying for a loan modification through the federal Making Home Affordable program, you must complete a three-month trial modification period. Lenders for non-government modifications also may require you to complete a trial modification. Fannie Mae specifies a three-month trial period for loans in default at the time of the trial modification. If you are current on the loan at the time the trial period begins, the period may last four months. Freddie Mac's guidelines require a three-month trial period.

Making Payments

You must make all payments during your trial modification on time. There is no grace period offered in a trial modification through the HAMP. If you miss a payment, you can be removed from the modification program and cannot re-apply. This trial payment includes taxes and insurance.

Submitting Documents

The HAMP program generally requires homeowners to submit current financial information to make sure you are still eligible. Paperwork may be similar to the paperwork you completed for the trial modification application. Your trial modification plan through the HAMP program will indicate a deadline for document submission. Before the trial period expires, contact your lender to make sure all required documentation has been received.

Permanent Modification

You must agree to the terms of the permanent modification. If your new interest rate is below the market rate on the day you execute your HAMP contract, it will remain effective for five years. During the sixth year, the interest increases annually by no more than one percent until it equals the market interest rate on the day you entered into your permanent modification agreement. The permanent modification begins the first day of the month following the final month of the trial period.