If you are experiencing a financial hardship due to the coronavirus or having difficulty making on time mortgage payments, there are options for you to consider.

 

 

Loan Modification vs. Forbearance

 

Let’s review the differences…

 

 

Loan modifications changes the terms of your secured loans to lower your monthly payments with the end goal of relieving some of the financial pressure.  This option is great for those facing hardship because they’re not dependent on credit score or income and are designed to prevent foreclosure.

 

 

Such modifications can include:

  • Reducing your interest rate
  • Changing a variable interest rate to a fixed one
  • Extending the term length

The downside is that loan modifications can show up on your credit report with a comment code that says something like “paying by modified terms.” However, it’s better to have a loan modification on your report than a foreclosure or missed payments.

 

Mortgage forbearance allows homeowners to pause their mortgage payments while dealing with a short-term crisis. It basically means the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will bring the borrower current on their payments within a certain period of time.

 

As part of the recently enacted Coronavirus Aid, Relief and Economic Security (CARES) Act, mortgage accounts in forbearance as a result of COVID-19 cannot be reported negatively to the credit bureaus by lenders. It is also commonly reported that due to COVID-19 lenders are not requiring proof of hardship outside of verbal or written verification from the borrower.

 

 

Before you go into forbearance, make sure you understand what your repayment options are.

 

 

If you have questions about either of these options and/or what is best for you call us at 800- 822-7120. THD Credit is here to help!

-Erik Kaplan

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