How Your House Mortgage Affects Your Credit Score

It is speculated that the fall of the housing market in North America was the start of the economic recession that gripped the entire world

. Although the number of foreclosures in Canada was far lesser than its neighbor the United States, there were a significant number of homeowners who were affected because of the downward spiraling economy. With more homeowners struggling with their mortgages, few had to lose their homes completely, while others managed to renegotiate their mortgage plans with their lenders. Today, for many homeowners, how they handled their house mortgage is one of the main reasons for either their credit scores being up or being precariously down.

Now if you as a homeowner did not default on your mortgage at all or never even fell behind on any of the monthly payments, then obviously your credit score will be quite high right now. In fact a lot of lenders will be queuing up to lend further money to you if you wish to apply for any other types of loans.

On the other hand, for those homeowners who just could not keep up with their mortgages and after several notices from their bank had to opt for foreclosure, their credit scores would probably be at an all time low. For these homeowners, getting another loan from traditional sources will be next to impossible right now with banks getting stricter by the day.

The third scenario is where a homeowner had been struggling with their mortgages, fell behind for a certain amount of time but then was able to renegotiate with the banks or mortgage lenders for a modified payment plan. Usually for a modified mortgage plan, lenders allow a low monthly repayment obligation for the first few years, something that they know their borrowers will be able to handle at the moment and after a predetermined number of years, the repayment amount would get higher as it is assumed the economy or any financial problems have turned around by then. Now for such homeowners, their credit score will still be affected. Even though you may be meeting the payment requirements of the modified mortgage plan on time, your credit score will still go down. This is because when you originally applied for the mortgage, by agreeing to the terms and conditions of the lender, you made a promise to meet all requirements of the repayment schedule. By asking for a loan modification, you are breaking that promise and this is duly reported to the credit-reporting agencies. Of course modifying your mortgage and saving your home is always more advisable than taking a slight hit on your credit score, but you still need to be aware of the fact that your score will go down moment you ask for a mortgage modification.

Mind you if you feel your financial troubles wont last long and you might just miss one of two monthly payments, you can always apply for a car title loan and ensure you do not fall behind on your mortgage during that period.

by: Martin Lander

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