Mortgage Forbearance

Good morning friends,

The Covid-19 Coronavirus has led to some challenging times for all of us. So in today's post I am going to share with you what a Mortgage forbearance is and what its not

​The Government has created the CARES Act, to assist homeowners whose income may have been adversely impacted by the coronavirus.  One of the components of the CARES Act is the possibility of mortgage forbearance.

Forbearance is often misinterpreted.  While it is intended to help, it can also have some dangerous repercussions.  Many people are mistakenly thinking that forbearance equals forgiveness.  It does not.​


What is a Forbearance?

With this option, 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.

Forbearance may be an option if you are:

  • Behind on your mortgage payments or on the verge of missing payments
  • Experiencing a temporary hardship

What are the benefits?

  • Lower or temporarily suspend your monthly payment—giving you time to improve your financial situation and get back on your feet
  • Less damaging to your credit score than a foreclosure
  • Stay in your home and avoid foreclosure

How does it work?

Forbearance reduces your monthly mortgage payment—or suspends it completely—during the forbearance period. If you qualify for forbearance, you and your mortgage company will discuss the forbearance terms:

  • length of forbearance period,
  • reduced payment amount (if the payment is not suspended), and
  • the terms of repayment.

After the forbearance period has ended, you will need to repay the amount that was reduced or suspended. However, there are a few options available if you qualify— make a one-time payment for the amount due (reinstatement); add a specific amount to your payments each month until the entire amount is repaid (see Repayment Plan); or cure the past due amount through a modification (see Modification).

Forbearance means that the payments will be suspended for a short period of time, initially up to 6 months, but will need to be caught up when the forbearance period is over.  

 

Think about when you buy something at a furniture store that offers “no payments” for 3 months.  

You still must pay for the furniture…the payments are just deferred.

 

Imagine not making your mortgage payments for 6 months.  Beginning in April 2020 through September 2020.  With your October 2020 payment, the entire 6 months of payments plus your October payment could be due all at once.  Mortgage forbearance can be worse if the amount owed accumulates for long periods of time.  Should this happen, the lender will enforce their right to be paid, which may cause the borrower to be foreclosed upon and ultimately lose their home.

Forbearance is designed to help those as a measure of last resort.  It is not a free pass and may have serious consequences.

Depending on your situation, I may be able to help by eliminating your debts, lowering your payment, and giving you a cash cushion during these turbulent times.  Please reach out to me directly with any questions you may have during this time.  As well, if you are experiencing financial hardship, it is extremely important that you reach out to your mortgage servicer to discuss options and fully understand those options before you miss any mortgage payments.

 

References:  https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf;https://www.knowyouroptions.com/options-to-stay-in-your-home/overview/forbearance

Best wishes,

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