Mortgage modification should not be confused with mortgage refinancing

Dear Experian,

In order to refinance our home we might have to miss two or three payments to qualify for a modification loan. We have an excellent credit rating now. Is there a way we could miss these payments without affecting our credit rating?



Dear KHR,

No. If you miss mortgage payments your credit scores will be affected. Multiple missed mortgage payments will seriously damage your credit history, which likely will be reflected in much lower credit scores. As a result, you may have difficulty obtaining new credit.

Loan modification should not be confused with mortgage refinancing.

Loan modification programs are intended for people who are unable to make their mortgage payments — even if they have to be very frugal with their spending to do so. Mortgage modification programs were created to help people keep their homes when they no longer have the financial capability to pay their mortgage under their current agreement because of economic situations beyond their control.

There are stringent qualification requirements for mortgage modification. One of those qualifications usually is that the individual’s mortgage payments are already delinquent.

Mortgage refinancing enables those with sound credit histories to take advantage of lower mortgage interest rates. The mortgage refinancing process essentially requires you to apply for a new mortgage at a lower interest rate.

When you qualify, the new mortgage is used to pay off your existing mortgage debt. You then make payments on the new mortgage at the lower interest rate, resulting in lower monthly mortgage payments.

The drawback is that refinancing usually involves a number of fees tied to the mortgage loan process, such as closing costs. The interest rate needs to be sufficiently lower than your current rate, and you may need to be committed to staying in the house for a number of years to make the investment worthwhile.

However, mortgage interest rates currently are quite low, so refinancing may be a great idea. Speak to your mortgage lender about whether refinancing makes sense for you. It might help save you a lot of money in the long term without damaging your credit history.

Thanks for asking.

- The “Ask Experian” team

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