Are you unsure if mortgage forbearance is the right option for you? What are the pros and cons of doing forbearance? Should you use savings instead of doing mortgage forbearance? In this video, I dive into the pros and cons of forbearance and why I used savings instead of accepting forbearance from my lender.
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What is a mortgage forbearance?
A mortgage forbearance agreement is an agreement made between a mortgage lender and delinquent borrower in which the lender agrees not to exercise its legal right to foreclose on a mortgage and the borrower agrees to a mortgage plan that will, over a certain time period, bring the borrower current on his or her mortgage.
Pros of Mortgage Forbearance
1. You get the ability to delay payments until some point in the future. If you have cashflow problems due to the loss of a job or some unforeseen circumstance associated with covid-19 then this could help you get through that tough time.
Cons of Mortgage Forbearance
1. The missed payments don’t go away and will need to be made at some point in the future whether is a repayment plan, modifying your loan or added on to the balance of your loan.
2. Mortgage forbearance will likely impact your credit. While the lenders aren’t reporting negative activity to the credit bureaus, they are reporting the fact that you are in forbearance and that alone will likely impact your credit score. We have several viewers already reaching out saying their credit scores have been impacted from accepting the forbearance terms.
3. It will impact your ability to refinance or purchase a home in the near future. At this point, we don’t know how lenders will respond to the forbearance appearing on your credit but if the past is any indication, your forbearance would need to be paid in full before you could purchase or refinance and in some cases, there could be a period of time that will need to pass as well.
Should I use Savings instead of doing Forbearance Mortgage?
I personally had a loss in income during this covid-19 epidemic and chose to use my savings to pay my mortgage instead of accepting forbearance. For me, it was all about preserving my credit so that I could take advantage of lower interest rates in the future and not put myself in a position where I couldn’t refinance if it did in fact affect my credit score or lenders wouldn’t refinance me because of that mortgage forbearance.
In my eyes, that’s the reason that you have savings to start.
Do you have additional questions about forbearance, real estate or mortgage finance? If so, please comment below or contact me directly.