A mortgage modification allows you to negotiate the terms of your mortgage to make house payments more affordable if you are facing financial difficulties. There can be many benefits to this option but keep in mind that there can be drawbacks as well.

Pros

Avoid foreclosure: A loan modification will lower your monthly mortgage payments so that you can afford them, therefore avoiding foreclosure.

Pay less interest: One option of a loan modification is to negotiate lower interest on your mortgage or even an interest-only mortgage.

Lower your principal: If your home is worth less than what you owe, your lender may reduce the principal payment.

Reduce your payments: By extending the term, reducing interest rates or lowering your principal your monthly mortgage payments become more affordable.

Preserve your privacy: A loan modification is negotiated between you and your lender. Unlike a foreclosure it is not publicized or advertised.

Relax: Proactively discussing your options with your lender when under financial pressure and finding solutions together takes away the stress and anxiety most often associated with foreclosure.

Cons

Demonstrate financial distress: In order to receive assistance under the Making Home Affordable (MHA) plan you must prove that financial difficulties exist.

Your home is worth less than what you owe: Your mortgage must be 105% or less of your home in order to be eligible for a home loan modification.

Inconsistent coverage: Not all homeowners will receive assistance. MHA administrators are wary of homeowners who deliberately miss payments to qualify for assistance.

Credit score: A mortgage modification will lower your credit score, although a short sale or foreclosure has more severe effects on your credit score.

Scams: Beware of con artists. A number of companies have emerged who charge illegitimate fees and offer illegitimate services. Be sure you always work with actual government representatives.

Talking to a mortgage modification specialist can help you avoid foreclosure.