What is Mortgage Forbearance or Payment Deferral?
Forbearance (noun) The act of forbearing; a refraining from something. A creditor's giving of indulgence after the day originally fixed for payment.
As we navigate the daily onslaught of news surrounding the COVID-19 pandemic, there are a lot of terms you’ll hear regarding financial assistance, some of which include: stimulus, the CARES act, PPP, deferment and forbearance. If you’re a homeowner in fear of missing your mortgage payment due to being furloughed, laid off, or other negative impact on your income, then that latter term could look like a potential solution.
What is Forbearance?
Forbearance is an agreement with your mortgage lender to either reduce your monthly house payments or suspend them entirely for a set period of time – ranging from 90 days to an entire year. This is to allow you to get through a temporary financial hardship without worrying about late or missing payments – or worse, foreclosure or eviction.
Federal mortgage stalwarts Fannie Mae and Freddie Mac are encouraging lenders to be flexible and work with homeowners where possible in order to protect the housing market until the crisis passes and the damaged economy can be rebuilt. Mortgage companies are cooperating with proactive borrowers to find the best solutions for their individual circumstances. The key word is proactive. Homeowners should not simply stop making payments with the hope of a retroactive fix. Doing so will damage your credit and make recovery more difficult to achieve. Reach out to your lender before missing a mortgage payment and discuss the best possible strategy to protect your home and credit.
Is Forbearance the Right Move?
While pursuing forbearance with your bank or lender can be a forgiving short-term solution, it is not a forgiven loan. It’s a deferral of current payments that will require repayment – possibly in one lump sum after a determined number of months.
In other words, if you aren’t confident of recouped income or resources at that future date, the amount due can be devastating or untenable. Reducing monthly payments for a temporary period will also have a future due date, but it may be more feasible to repay.
Another solution that may be more forgiving which is also offered by most lenders is a mortgage modification. With this option, the deferred payments are rolled into the modified mortgage and either spread out through the life of the loan or added to the end. While there is more of a qualification process with modification, it can provide a longer-term solution without fearing an unmanageable balloon payment associated with a forbearance plan.
Without an economic crystal ball, it’s difficult to know if a 90-day reprieve will help homeowners in the long run or further add to their burden in uncertain times. What we do know is, whatever the new normal looks like at the end of this crisis, Titan Mutual Lending Inc. is here to help set you up for the best possible outcome no matter what your circumstances are. Give us a call today to discuss your options. We wish you and your family continued financial and personal health.