What is a loan modification? A loan modification is an agreement between a lender and a borrower that changes (modifies) the terms of a loan to.The lender may agree to adjust the terms of the loan to make it affordable. A loan modification is an agreement with your lender to change the terms of your loan to make the payment more affordable. Step 2: Reach out to your lender. Fill out the paperwork for the mortgage modification. Most lenders will ask you to formally apply for the mortgage loan modification. All parties on the loan must agree to participate in the modification process. Your new agreement may include lower payments, less debt, and a different interest rate.