What is loan debt restructuring?
Loan debt restructuring is when a lender agrees to alter the terms of a homeowner’s mortgage to help them avoid default and keep their house during times of financial hardship.
The goal of a mortgage loan debt restructuring is to reduce the borrower’s payments so they can afford their loan month–to–month. This is typically done by lowering the mortgage rate or extending the loan’s repayment term.
A mortgage loan debt restructuring does not replace your existing home loan or your lender.
It restructures your loan in the interest of making it more manageable when you experience difficulties in making your mortgage payments.
How mortgage loan debt restructuring works?
With a loan debt restructuring, the total principal amount you owe won’t change.
But the lender may agree to a lower interest rate, reduced loan length, or a longer payoff period.
Any of these strategies could help reduce your monthly mortgage payments and/or the total amount of interest you pay in the long run.
Can also include switching from an adjustable–rate mortgage to a fixed–rate mortgage and rolling late fees into your principal, adds Condor.
Note, loan debt restructuring is intended to make a mortgage more affordable month–to–month. But it often involves extending the loan term or adding missed payments back into the loan.