Say you owe $200,000 on your home. Your lender can choose to set aside $50,000 of that principal, leaving you to make monthly principal and interest payments on $150,000. When you sell your home or refinance your loan, that $50,000 is added back on to your loan.

If your circumstances qualify, a loan modification can help you keep your home, and keep your lender from becoming a property owner. Remember, however, that lenders may refuse to modify a loan if they think you aren't struggling enough. And, grim as it sounds, they may also refuse to modify your loan if they think you're struggling too much and they stand a better chance of minimizing their losses in bankruptcy court.
Peter McDougall is a freelance writer who lives in Freeport, Maine, with his wife and their dog.

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