Many people struggle to make their mortgage payments. When a disaster hits, such as the COVID pandemic, those payments become even more of a burden. It’s important to understand that you do have options. Mortgage forbearance is one of those options. Of course, like any financial choice, it has pros and cons. Here is everything that you need to know to make an informed decision about whether or not mortgage forbearance is right for you.

What is Mortgage Forbearance?

Mortgage forbearance, much like student loan forbearance, is a means to reduce or eliminate your mortgage payments for one or more months. It is available for many people who are financially unable to make their mortgage payments at this time. If you find yourself unable to pay your mortgage, it’s important to call your lender to discuss your options. This is one of the options that you should discuss.

Mortgage forbearance has always been an option for home loan borrowers who find themselves facing financial problems. Due to the coronavirus and its associated financial challenges, more people than ever are seeking mortgage forbearance. In fact, the CARES Act specifically includes regulations for mortgage assistance in consideration of this issue.

That said, mortgage forbearance is only a short-term solution. Depending on your loan terms, you may qualify for anywhere from one month to one year of paused mortgage payments. Most forbearance programs fall into the 3-6 month range. Your mortgage is many years long. It’s a way to pause the payments as you get back on track. It doesn’t reduce your overall loan payments. Arm yourself with information about the pros and cons before you decide to go this route.

Benefits of Mortgage Forbearance

The number one benefit of mortgage forbearance is that it provides you with a means to pause or reduce your mortgage payments. This is a way of working directly with your lender during a time when you face financial difficulties. By doing so, you give yourself the best chance of coming out of those financial hardships with few or no penalties to your loan terms and credit report. If you can’t pay your mortgage, don’t ever just fail to make the payment. Call the lender to discuss the options. Mortgage forbearance is a crucial option.

So, to summarize, the biggest benefit is a pause or reduction in mortgage payments, allowing you to catch up financially during tough times. In conjunction with that, it’s a means of keeping yourself in good standing with your lender. It keeps your credit score safe during the period of forbearance. Obviously, it’s a way to keep your home from going into foreclosure.

Downsides to Consider

Pausing your mortgage payments sounds like a great option. If you can’t pay your mortgage, then it just might be your best choice. However, it’s important that you fully understand the terms of this agreement. Some of the potential drawbacks or downsides to consider include:

Your forbearance program eventually runs out.

When it does, you’ll have to make payments again. This could be in one month or one year, depending on the terms you work out with your lender. In some cases, you may need to make even bigger monthly payments once you start paying again (in order to catch up). You may even have to make. lump sum payment to pay it all back at once! Alternatively, the lender may extend the life of the loan.

If you get to the end of the forbearance period and then miss payments, it will negatively impact your credit score. If you can’t meet the terms of the forbearance during the program, it will also negatively impact you. If your financial difficulties are short-term, then the forbearance option makes sense. However, if you don’t see your finances improving in the relatively near future, you might want to consider alternatives.

You may have trouble getting a new home mortgage loan for awhile.

According to Forbes, these programs can lead to negative impact on your ability to qualify for home mortgage loans including refinancing. Yes, it’s true that forbearance doesn’t impact your credit score. And yet, lenders can see that you took this option. They may choose not to support your applications for assistance in the near future as a result.

Your mortgage may cost you more in the long run.

Interest will likely continue to accrue throughout your paused payment period. Ultimately, this means that you’ll pay more overall for your loan. If you can make your mortgage payments now and skip that added interest, that’s your best bet. If you can’t make your payments then the extra interest could be a small price to pay to stay in good standing with your mortgage lender.

It doesn’t kick in right away.

If you have a mortgage payment due immediately then this might not help you. It typically takes a month or so for the new agreement to kick in. Therefore, there’s a good chance that you will still have to find a way to make this month’s mortgage payment even if you can pause future payments.

There might be a better option.

This is only one option. It might not be your best one. The CARES Act covers mortgages from people who have federal loans such as Freddie Mac and Fannie Mae loans. Several states, including New York and California, have also created new rules for mortgages in response to COVID-19. Private lenders can make their own decisions. If you have a home loan with a credit union, for example, then they might work with you in ways that give you better terms than forbearance.

Should You See If You Qualify for Mortgage Forbearance?

Weigh the pros and cons before calling your lender. If you are definitely unable to make your mortgage payment – in full or in part – make that call. When you do decide to make that call, make sure to ask about all of your options. Each lender has different programs with different terms. Mortgage forbearance is only one choice. You may discover that there’s another plan more suitable to your specific needs. It is very easy to make rash impulsive financial decisions when you feel the strain of dire financial straits. Keep your head on straight and approach the problem calmly in order to find the solution that’s best for you both today and in the future.

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