Since the beginning of the pandemic there’s been a significant amount of discussion and information about COVID-19 mortgage forbearance. For many who have lost their jobs this may be a good option but it’s important to understand how mortgage forbearance works.
First, did you know a forbearance agreement is actually a form of loan default, based on a temporary hardship that allows you to make a reduced payment or no payment at all?
Although according to the CARES Act a servicer may not require proof of hardship, this program is not designed for those who are able to make their payments. While the forbearance won’t affect your credit score, it will still be on your credit profile. This means it could be the reason you are denied a mortgage in the future, for a purchase or refinance of your current mortgage. It could even stop you from selling your home in the next 6-12 months because you may not be able to get financing for a new home.
The most important piece to understand is that your payments are not just tacked on to the end of your loan. While this is possible, this deferment isn’t the usual process. Instead, it’s possible your missed payments will be due at the end of the forbearance period, in either a lump sum or spread out over a longer timeframe, such as a year.
So if you’re able to make your payment now, you won’t have saved anything – you’ll just have a larger payment to make in a few months and possibly affected your ability to obtain a mortgage in the future.
There’s a ton of misinformation out there and it’s very important you speak with your mortgage company about how forbearance works for your loan before committing to it.
If you’d like to know more about your options, please contact me anytime and we can talk more. I’d be happy to put you in touch with a mortgage professional who can help.
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