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Is Forbearance Right for You?  There Are Some Things to Consider

Is Forbearance Right for You?  There Are Some Things to Consider

On March 27, 2020, Coronavirus Aid, Relief, and Economic Security Act (AKA the CARES Act) was signed into law with the goal of providing relief for those affected by the Covid-19 epidemic. In addition to stimulus checks and small business loans, the CARES act allows homeowners to apply for temporary loan forbearance for up to 180 days and possibly extend forbearance for another 180 days.

Before we discuss what to watch out for, what exactly does forbearance mean?

Forbearance is when your mortgage servicer or lender allows you to temporarily pay your mortgage at a lower payment or pause paying your mortgage. You will have to pay the payment reduction or the paused payments back later. - Consumer Financial Protection Bureau

Should you apply for forbearance? Weigh the risks:

You’ll still have to pay your taxes and insurance. Many borrowers escrow (pay monthly with their loan payment and bank deposits into an account) their taxes and homeowner’s insurance. These are still need paid even if your mortgage is in forbearance.

What are the terms? There is not much guidance on how banks are required to administer the forbearance. Let’s look at 3 scenarios.

There is not much guidance on how banks are required to administer the forbearance. Let’s look at 3 scenarios.

Will this affect your credit? Under the CARES Act, lenders are obligated to report your loan as current while in the 180 day forbearance period. That said, once that period has elapsed and your payments are now due, any missed payments will be recorded. Please make sure you are prepared when that time comes.

The bottom line is, if you can make your payments, it’s in your best interest to do so. If not, make sure you weigh the benefits and understand all the terms and conditions. We highly suggest talking to a mortgage professional before you sign off on anything.

Here are a few helpful guides to help you make an informed decision:

FannieMae-FreddieMac Assistant Options

CFPB What Is Forbearance?

CFPB Guide to Coronavirus Mortgage Relief Options

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