Pros & Cons of a Short Refinance

Pros & Cons of a Short Refinance

A short refinance is one of several alternatives that allow both a lender and home owner to avoid foreclosure.  It is typically available for borrowers that are in default and involves creating a new loan amount than the existing outstanding balance owned.  The difference is typically forgiven by the lender.  Why would the lender agree to such terms?  Foreclosure is almost always more expensive for the lenders not only because of the physical costs but also because of the loss of payment / interest revenue during the process.   Pros The borrower retains ownership of home The mortgage balance is lowered The interest rate is lowered Equity is regained in home Monthly payments are reduced   Cons The borrower’s credit score is damaged The process is time consuming There is no guarantee Qualification is required (usually requires Full Doc and Stated...

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How Do Events Impact Your Credit Score?

How Do Events Impact Your Credit Score?

So how does foreclosure impact your credit score?  What about other damaging item like Bankruptcy? Until recently the credit agencies have been very secretive about what will happen to your FICO score after you start to fall behind on your payments. Just recently Fair Isaac, which is the company that developed FICO scores, has come out with some estimates (averages) on how your credit score will be impacted based upon mortgage delinquency. Here are their numbers… 30 days late: 40 – 110 points 90 days late: 70 – 135 points Foreclosure, Short sale, or Deed-in-Lieu: 85 – 160 points Bankruptcy: 130 – 240 points   Fair Isaac came up with these numbers based upon averages of different types of people, some of which had multiple (7-10) creditors and some with much less (1-4). They also factored in length of credit history, number of past missed payments and previous damaged accounts. As you can see the credit penalty to your FICO score becomes much more dramatic once you get 90 days or more behind on payments. This is due to the likelihood of full payment decreasing after this time. Also these point losses affect someone with a higher score much more dramatically than someone with a sub-par score to start with. So how do these FICO scores affect your personal finances? Well the average savings for someone with a good vs. mediocre credit score for auto insurance is about $115 a year. I’m not sure what type of car you drive but I’m sure that is at least a couple extra tanks of gas per year or a nice dinner on a birthday or anniversary. Point being everyone could use an extra $115 dollars. Now if auto insurance was the only thing affected by FICO scores… How about home owners insurance, car loans, home loans, renting an apartment, or getting a new job. Credit scores affect your personal life in so many different ways. When you apply for a loan or job, remember that every point counts!...

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