Definition

• A mortgage restructuring is a plan where the lender alters the terms of the loan to make it easier for the borrower to pay it off. This does not temporarily remove the need to pay, as forbearance does, but it does lessen the amount of the monthly payments. This is a useful compromise if the borrower is only experiencing minor financial difficulties, such as a cut in income. Borrowers are still responsible for paying back any payments they have missed as part of the restructure agreement.
  
  

Purpose

• Most borrowers restructure their mortgages in order to prevent foreclosure. In a foreclosure, the lender asks a court to seize the home and sell it to recover the loss on the loan. This wastes time and money on the part of the lender, so restructuring can be an ideal compromise if the borrower is willing and able to continue making payments. Restructuring can also help save a borrower's credit if the loan is not yet in default.
  
  

Possibilities

• Lenders can change a loan in several different ways when restructuring. If the borrower cannot currently make up defaulted payments, the lender may tack them onto the end of the loan and continue with the same payment requirements as before. Other lenders may agree to lower the interest rate, although this is rare. More common is a lengthening of the original loan to draw out remaining payments over a longer period while keeping the total amount owed the same.
  
  

Programs

• Several government programs help borrowers restructure their mortgages when they are having financial troubles. Borrowers must prove their troubles through a statement of financial hardship that shows their current debts and incomes. Home Ownership Preservation Loans, for instance, help pay down the original loan and restructure the remaining amount into a new fixed rate mortgage for the borrower. Other programs may help a borrower pay a certain amount per month on the restructured loan.