Understanding Revised Mortgages: Modifications & Refinancing

A revised mortgage, also known as a modified mortgage, is a mortgage that has had its term changed through a legal amendment to the pre-existing home loan. While some homeowners will choose to refinance their loans entirely, others prefer to draw up an agreement with their lenders to merely revise the document. Modifications are relatively common and can allow both the borrower and lender to come to terms that are financially beneficial.

Process

A mortgage will be revised when either the lender or the borrower of a home loan approaches the other party about the possibility of changing the terms of the contract. Usually, it is the borrower who will approach the lender about the modification. The two sides will work out mutually agreeable terms, and then an amendment to the current mortgage document will be drawn up. Once both parties sign it, the mortgage is modified.

Uses

Mortgages often are revised when the borrower is in danger of not meeting the terms of the contract. Sometimes, a borrower may find that she is not able to make her monthly payments. For example, she may have seen a decline in her income or, under an adjustable rate mortgage, prevailing interest rates could have spiked. By modifying the mortgage terms, the borrower is able to stay in her house and the lender does not have to foreclose.

Modification vs. Refinancing

The main advantage to modifying a loan over refinancing it is expense. When a person refinances a mortgage, he goes through the same process as when he took out the original home loan, with many of the same expenses. This process can be costly and time consuming. By contrast, while a person may have to pay legal fees to have a revision drawn up, the modification process is generally simpler and less costly.

Considerations

The main difficulty with the modification of a mortgage is that, unlike with refinancing, a person can only modify his mortgage with his current lender. If either the lender or the borrower does not wish to modify the contract or the two parties cannot reach terms, the revision cannot happen. Sometimes, a borrower will find himself unable to refinance -- often due to a poor credit score -- and will be forced into foreclosure when his lender won't modify his contract.