Mortgage Modification – The Effect It May Have On Your Credit Score
Mortgage modification is relieving when you face difficulties with your mortgage payment. In mortgage modification, the term of your existing mortgage loan gets modified and the loan payment becomes less troublesome. If you’re missing your mortgage payments due to severe debt problems, then your lender may agree to help you out by offering mortgage modification. This is definitely a helpful option for people with immense debt problems, but it’s harmful for the credit score too. Your credit score may be hit considerably.
Mortgage modification – What it does for you:
Mortgage modification helps you to pay off your mortgage loan effortlessly. As a result you can get rid of your delinquent status. Your monthly payments become reasonable. It’s even possible to avoid situations like foreclosure and bankruptcy with the help of mortgage modification.
Your lender will go through your loan papers first. After complete examination of the papers, you’ll be offered a trial modification. This trial modification is a vital requirement for many lenders to be qualified for permanent modification. The trial period may exist almost up to 6 months. During this period your lender may collect other essential documents regarding your mortgage loan. After the trial period is over, you may qualify for the permanent modification if your lender gets convinced with your dedication for payment.
The way mortgage modification impacts credit score:
The effect of mortgage modification on the credit score depends on the way your lender reports it. Lenders generally report mortgage modification as “partial payment plans” to the credit reporting bureaus. This may be degenerating for your credit score. Taking advantage of mortgage modification means that you’re not paying off the loan amount in whole. This is taken as the main reason behind the reduction of your credit score.
However, mortgage modification isn’t damaging, the way bankruptcy and foreclosures are. In both bankruptcy and foreclosure your credit score gets severely damaged. They are damaging for your financial future too. On the other hand, mortgage modification may be helpful to recover your financial strength. Not only this, but mortgage modification also helps you to save your home from foreclosure.
Whether the impact can be neutralized or not:
It’s not possible to get rid of the impact completely. You may ask your lender about how the payment history will be reported during the mortgage modification. During the trial modification period the payments can’t be reported as partial.
Mortgage modification is definitely a sensible solution for the people who struggle with their mortgage loans. One of the biggest advantage is you can save your home by avoiding foreclosure. If you show dedication, then you can easily improve your credit score in future. So, talk to some mortgage professionals and go ahead with your plan for mortgage modification.
Angelina is a professional financial writer from Chicago. She contributes financial write ups to websites and blogs so that she can help people who are struggling with financial worries. She writes on different topics such as mortgages, real estate, home loans and refinance.