A loan modification allows homeowners to change their loan terms due to financial hardship. A mortgage modification can extend your mortgage loan term or lower your interest rate which can help homeowners afford payments or avoid foreclosure.Student Financial Responsibility Agreement. Complete the Application: Fill out any required loan modification forms accurately and completely. 4. Interest Rate Modification: This provision permits a reduction in the interest rate applied to the loan, which lowers the borrower's monthly payments. What is a loan modification? The agreement may be written in a way that makes it very hard to comply. Just like a mortgage application, a loan modification application can take hours to complete.