Mortgage Rate News

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One of the issues surrounding loan modification is how it could affect a credit score. Many have been concerned about how deciding to go through a loan modification could possibly damage a credit score. This is because there haven’t been a lot guidelines about how to handle credit reporting with regard to loan modification. Here is what what Attorney Loan Modification News Blog offers about how credit scores should be affected by loan modification going forward:

Thanks to new guidelines set forth by the Consumer Data Industry Association, loan modifications under federal programs Making Homes Affordable and the Home Affordable Modification Program are to be listed on credit reports as, “loan modified under a federal plan”. This notification on the credit report will not have the same negative impact previous entries such as “partial payment” have had. In many instances, a report of a partial payment during the trial loan modification period could drop a borrower’s credit score as much as 100 points.

For the time being, FICO has agreed to take no action on these new entries… yet. Instead the credit reporting agency plans on studying the long term outcome of these loans and then making an appropriate score assessment based on the success rate of modified loans. As it stands now, banks are supposed to report the loan as current if the borrower is current on their normal mortgage payment and is current through their trial. However, if a homeowner is behind on their payments as they begin the trial process, their late entries on their credit report will not be expunged.  When the permanent loan modification is approved and implemented that is when their loan will be brought current, but the late that are currently on the credit report will continue to report on the credit report.

It is important to note that many of the things that are going on right now in the credit world are in flux. New formulas for figuring credit scores, as well as deciding on how different things should be valued, are changing right now, and some will see improvement and some people will find that their scores drop.

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So often, when we look at the purchase price of a home, that is all we see. We look at a home that costs $187,000, and think: “Not bad.” We talk about how much the home cost, and we use that number. However, the total cost of your home is more than just the purchase price. It includes a number of items from closing costs to homeowner’s insurance, to the monthly maintenance and utilities you are responsible for. But the biggest cost that is associated with your home is the interest you pay.

Interest is an awe-inspiring thing. It is a fee you pay for the privilege of borrowing money. You don’t get any sort of direct benefit in exchange for paying interest. It is a sum that you pay, just for the privilege of getting access to the funds you want in order to buy something. So, after paying interest for 30 years, you might find that the total cost of your home is something that is considerably more than $187,000. It could be as much as $300,000 — or more.

This very reason is why what interest rate you get is so important. Just a 1% difference in interest rate can mean tens of thousands of dollars over the life of your home mortgage loan. Interest is very powerful. The higher your interest rate, the more you pay. And the longer you are paying interest, the more you will pay in the long run. Your best weapon, of course, is to avoid paying interest altogether. In terms of buying a home, though, this is probably not practical. As a result, you should carefully consider the size of the mortgage you are getting, as well as try to get the lowest mortgage rate possible (by having good financial habits and a good credit score). You should also see if you can handle a shorter term. This may mean that you make larger payments on a monthly basis, but you will pay less in the long run as far as interest is concerned. In the end, it’s a trade off between what you can handle, and what will ultimately save you more over time.

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One of the more common occurrences related to mortgages is the need for Primary Mortgage Insurance (PMI). This is important to mortgage lenders who are concerned when you have less than 20% down. Some use a piggy-back mortgage to help avoid PMI, taking out a loan for 20% of the purchase price. While this piggy-back method can help you avoid paying Primary Mortgage Insurance, the higher interest rate charged on the piggy-back loan can sometimes negate the value, since the piggy-back loan is often for 3o years. (You can get rid of this loan by refinancing, paying it off early, or getting a shorter term on the piggy-back mortgage.) Before deciding that this is the way to go, it is best to run a few numbers and see whether getting a piggy-back loan would really result in a savings overall.

Here is what Investopedia has to say about PMI:

The PMI payment is usually paid monthly as part of the overall mortgage payment to the lender. Over several years of paying on the loan and once the borrower has paid enough towards the principal amount of the loan (to cover the 20%), they can contact their lender and ask that the PMI payment be removed. Many borrowers either forget or do not know that PMI can be removed once the accepted level is achieved.

It is a good idea to see where you stand every so often. While you may have to wait for an appreciation in home value to help you in your efforts, this is one way you can speed up the process. In the end, you should keep an eye on things, though, and make sure that the PMI payments are properly removed when you have enough equity in your home. The different can mean thousands of dollars saved over the life of your loan.