Loan modification affects
Experts are estimating that mortgage loan modification will help millions of Americans by the end of the recession but how does it affect credit repair, credit score and overall financial long-term viability? Consumers are concerned with the long-term effects of loan modification. This includes what tax implications are pending because of modifications. These concerns are appropriate in a time of economic uncertainty, where Americans are struggling to gain a footing on their personal finances.
Refinancing and its long term affects on credit score
In general a refinance should not affect a credit score. In general terms, a refinance is merely the same mortgage, only reworked to fit the customer’s changed needs. This holds true especially for homeowners refinancing under the federal program because one term of eligibility is that the person may not have missed a payment within the previous 12-month period. Norm Magnuson of the Consumer Date Industry Association warned that, “it is unclear what impact a federal loan modification will have on credit profiles…regulators have not yet determined how the loan modifications will be reported, if at all.”
Applying for a loan modification under the “Making Home Affordable” however, means that the homeowner already missed payments, and already hurt their credit health. In the long run, this program will help them get back on track, thus creating a positive payment history. This will help the credit score, long term.
Tax implications
The charges involved in mortgage refinancing are tax deductible. The appraisal fees and attorney costs are not. The total of charges that are deductible should be evenly divided and deducted over the entire life of the mortgage and not just taken as an upfront credit. Homeowners also have to be ready to adjust mortgage interest deductions if their mortgage interest rate goes down. This also will affect the deductions available.
Credit repair
Credit repair is a hot topic with so many Americans going through financial hardships during the recession. Squaring away a manageable mortgage payment can do immeasurable good to a credit score. After a few months of positive reporting due to payments on time, consumers should see their credit score moving upward slowly and be able to reap the benefits of their hard work.
Mortgage refinance or modification alone
Many homeowners are looking to save the added cost of a mortgage loan modification by doing the negotiating themselves. Experts say that this is a viable option if the homeowner is not eligible for a federal program. They need to be ready with documentation and the proper paperwork to assure their lender they are truly wanting to change their payment history, and have a way of getting back on track.
Government officials are warning people however, about programs that are reaching out to do negotiations for consumers under the guise of “loan modification specialists.” Many of these programs are fraudulent and charge consumers between $1,000 to $3,000 for their efforts. In the end, government-approved counselors are available to consumers and ready to aid them through mortgage difficulties, for free.
The recession’s aftermath
Credit repair, credit score and taxing after the recession is difficult to predict. Almost all analysts agree that credit will follow along the course of the economy, by stabilizing and gradually improving over the coming months. Tax benefits may, or may not, help the consumer depending on a variety of factors. In the end, though the upswing to the economy is a long-anticipated benefit that everyone is looking forward to.
