A loan modification from your lender or loan servicer is often free. Unlike refinancing, which typically involves several thousand dollars in closing costs, modifying an existing loan usually does not require an upfront fee from the lender.
Understanding Loan Modification Costs
The primary purpose of a loan modification is to help borrowers who are struggling to make their mortgage payments by adjusting the terms of their existing loan. Charging a fee for this process would often contradict the goal of making payments more affordable.
Here’s what you should know about the costs:
- No Lender Fees: Legitimate mortgage lenders and servicers generally do not charge a fee to process a loan modification application or to complete the modification itself. Their goal is to help you stay in your home and resume regular payments.
- Beware of Scams: Be extremely cautious of any company or individual who asks for an upfront fee to "guarantee" or "process" a loan modification. These are often scams designed to take your money without providing any actual service. Always work directly with your lender or a reputable, HUD-approved housing counseling agency.
- Potential Third-Party Costs: While the loan modification itself is typically free through your lender, you might incur costs if you choose to hire a third-party professional, such as a housing counselor or attorney, to assist you with the application process. These fees are for their advisory or legal services, not for the modification itself.
Loan Modification vs. Refinance: A Cost Comparison
It's important to distinguish between a loan modification and refinancing, as their cost structures are significantly different:
Refinancing a loan is generally more expensive than a loan modification because it involves taking out a completely new loan. This process often includes various fees, commonly known as closing costs, which can amount to several thousand dollars. These costs cover things like origination fees, appraisal fees, title insurance, and more.
| Feature | Loan Modification | Refinance |
|---|---|---|
| Primary Cost | Often free (from lender/servicer) | Several thousand dollars (closing costs) |
| Purpose | Adjust existing loan terms to make payments affordable | Replace existing loan with a new one, potentially with better terms or to cash out equity |
| Process | Application directly with your current lender/servicer | New loan application, credit checks, appraisal, underwriting, and closing |
| Common Fees | None from lender/servicer | Origination fees, appraisal, title insurance, attorney fees, recording fees, etc. |
Key Takeaways for Borrowers
- Direct Communication: Always initiate the loan modification process by contacting your current mortgage lender or loan servicer directly.
- No Upfront Payments: Do not pay any upfront fees to companies or individuals promising loan modification services.
- Seek Trusted Advice: If you need assistance, consider reaching out to a HUD-approved housing counseling agency. Many offer free or low-cost services to help borrowers understand their options and navigate the modification process.
