Most people use a mortgage modification to avoid a home foreclosure. While helpful in terms of financing your home, a mortgage modification also poses a risk to your credit score. However, becoming delinquent on mortgage payments causes damage to your credit as well, creating a tough choice for homeowners who are falling behind on their payments.
Understanding the Consequences of a Mortgage Modification
Whether or not you decide to pursue a mortgage modification, chances are that your credit score has already been damaged. Typically, a modification isn’t considered until the homeowner is at least 90 days delinquent on a payment. After being delinquent for this amount of time, damage has already been done to the credit score. Further damage can be caused depending on:
How your lender decides to report the modification. A settlement would negatively affect credit. If it is reported as not fulfilling the originally agreed upon terms, a few points may be dedicated, but it isn’t as damaging as missing a payment. An adjustment isn’t as damaging as a settlement.
How your lender treats the trial period. During the trial period or negotiation, you might not be making payments or might be asked to not make payments until the new terms are agreed upon. However, if this period is still being reported as missed payments, your credit will be damaged.
The new monthly payment. Not fulfilling the original terms of the contract by making lower monthly payments can potentially lower your credit score. However, a mortgage modification is much friendlier to your credit than a foreclosure or bankruptcy.
While we’d all like to stay current on our payments, sometimes a mortgage modification may be a necessary option. Fortunately, it doesn’t negatively affect credit, much like other options do, and like anything else, credit can be fixed over time. Before making any decisions, it is important to speak with a foreclosure lawyer to review all the options available to you.