Can Your Retirement Savings Be Affected by a Loan Modification or Foreclosure?
If you’re wondering whether your retirement savings are in jeopardy if you modify a loan or go through a foreclosure, there is a possibility it could happen. With loan modifications jumping 50% according to the FHFA, along with 1 in 466 U.S. homes in threat of foreclosure according to a recent report from RealityTrac, holding onto savings is all some people can do to remain financially stable.
However, there are conditions involved that dictate whether retirement savings can indeed be affected in these situations. Let’s take a closer look at these conditions:
If You’ve Modified a Loan
The process of modifying a loan allows you to change the terms of your loan, lower your interest rates, come up with shorter loan terms, or maybe even write off the entire mortgage to avoid foreclosure. But most importantly, because you are making an attempt to work with the bank to keep your mortgage current, your retirement savings will not be in jeopardy.
If Your Home is in Foreclosure
Foreclosures result because you defaulted on payments for more than 90 days and have been deemed unwilling or incapable of staying current with your loan. If you haven’t negotiated some way to keep your home, then it will be put up for auction to recover costs. However, if all costs are not recovered, you could be sued, at which time your retirement savings may be vulnerable – that is, unless you file for bankruptcy (401ks and IRAs are safe from debtors during bankruptcy).
As you can see, there are ways to avoid having your retirement savings touched in both scenarios. But to avoid serious financial problems down the line, it’s a good idea to try to modify your loan to keep your home and nest egg safe.
