Forbearance – Think Twice Before Accepting

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You may be considering a forbearance option from your mortgage lender if you experiencing a loss of income due to Covid-19. While forbearance may work for some people, for most it is the first step towards a downward path into foreclosure. Be careful when choosing this option from your lender and consider these things before making a decision.

First, what is a forbearance? It is when you and your mortgage company agree to temporarily suspend or reduce your monthly mortgage payments for a specific period of time. This option lets you deal with your short-term financial problems by giving you time to get back on your feet and bring your mortgage current.

That sounds great at first glance however, it implies you will have to repay the missed payments at some point. It is not as simple as just extending your loan from 30 years to 30 years and 3 months. Most lenders require the missed payments to be brought current after the forbearance period expires. So, if you miss 3 months of payments after those 90 days are up you will owe the past 3 missed payments and the next month’s payment all at the same time. Of courses, this does not help if you are unemployed or furloughed during those 3 months and have no income.

If you are unable to pay the 3 months missed payments all at once your lender will want to put you on some sort of payment plan. Either to stretch those payments out to 12 months and add it on top of your normal monthly payment. Or to work out some sort of hardship loan refinance with them at a higher monthly payment. Under either of these scenarios, if you were already struggling to meet your payments the increased amounts likely will not help.

Forbearance is just like putting a band-aid on a gushing wound for many people. So what do you do if forbearance is not going to provide you a long term solution?

The first step would be to look into a refinance. If you do anticipate working soon or your work hours were only temporarily cut back, I would recommend reaching out to a mortgage lender. Considering the historically low-interest rates we are experiencing there is a good chance your monthly mortgage payment could actually be lessened. This way you are able to keep your home and have a long term solution for lower monthly costs.

Another good option would be to consider selling your home. If you do not foresee a turn around in your personal finances in the near future selling now could be a good option to get out. Before you ruin your credit with missed payments and the condition of the home deteriorates why not sell ahead of time. This could alleviate the burden of the mortgage payment before you are too far in arrears on the loan to make up the difference.

Every family’s situation is different and I urge you to take account of all your personal finances before making a decision. In limited circumstances, forbearance is a good option for some people. Though it comes with pitfalls and is not a cure-all for your mortgage issues. Consider talking to your trusted Realtor to help make the right decision.

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ethangregory