There really is no such thing as a non-monetary cost in a mortgage loan modification. The bottom line is that a loan modification reduces a lender’s profitability. This is the very last thing any lender wants, and contradicts the whole reason they are in business at all!
There are, however, many indirect costs that result from a loan modification that won’t ‘cost’ you immediately.
Loan mods damages your credit score
There is no way to avoid a damaged credit score after a loan modification. As often as it is said, many borrowers fail to appreciate the fact that their reduced profitability is reduced profitability for the bank—they will make you pay somehow.
Your credit score is the first thing that will hurt from a mortgage loan modification. Most lenders won’t enter into a loan modification until you are delinquent. Delinquency on mortgage payments is almost always reported to credit bureaus. Beyond that, many creditors will make derogatory statements on your credit rating that indicate you needed a loan modification.
Compounded fees and penalties
Lenders will often stack fees and penalties onto the new principal of the loan. Read over you loan and do the math: If the fees and penalties of your loan modification end up cost you more over the next 20 years, see if there isn’t a better option or demand better terms on your loan modification.
A loan modification should save you money, not cost you more. Banks often prey on troubled borrowers by reducing their monthly payments, but extending the length of the loan so that they recover the same amount, if not more, as stipulated in the original loan.