Loan modification and credit score?

[Villanelle]

Long, convoluted backstory and reason for asking, and it isn't relevant.  But I am curious.  Does a loan modification affect a credit score?  If it matters, the modification in this situation would be a shorter term (I'm guessing about 5 years) lowering of interest rates and extension of the loan period (re-amortization), with no decrease in principal. 

[rhut]

Is this a loan modification or a refinance? A refinance will not negatively affect your score or credit history, but a modification will. When a mortgage shows that it has been modified on a credit report (whether it is gov't modified or not) you are basically telling future creditors that you could not afford the terms of your original mortgage. A refinance just tells future creditors that you found a better deal elsewhere.

(over seven years of lending experience)

[Villanelle]

It would be a modification.  I was surprised when she told me about it because I only knew modifications to be reductions in principal.  I'm assuming that even though it is only a change in terms and not balance and this looks like a refi, it is being done as a modification because the property is underwater.  So they couldn't refi. 

[rhut]

okay, the fact that it's over value makes more sense as to why it is a modification. after 2008 auditors would have a fit if they did a mortgage with too high of an LTV. i would suggest paying the higher rate and knocking down the balance as much as you can so that you can refi at a lower rate in the future. if you do the modification, it will reflect on your credit for 8-10 years AFTER the mortgage is paid off.