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Forbearance is NOT Forgiveness

Most of us are learning new words everyday! That’s what happens when we are watching/reading more news on Scientific issues all the time…

Forbearance is one of those words for probably a lot of us. What is Forbearance, and why is it being talked about as much as it is? Let’s dive into today’s Blog!

Forbearance - noun - a creditor's giving of indulgence after the day originally fixed for payment.

So, even the definition is not Crystal Clear. But the reason we’re hearing it a lot has EVERYTHING to do with mortgages, and almost no one is going to really like the answer.

If times are tough; you or a significant other have lost a job or had it substantially altered, money may be tight. Trying to cut expenses everywhere you can becomes a mode of survival, and we get that. You’ve probably heard on the news about Mortgage companies working with buyers, and it gives you hope. Hope after all, is a positive thing in a time of uncertainty. However, MOST lenders, if they are discussing items like this, are discussing FORBEARANCE as a way to help out.

So, I provided the definition above, but what does it mean in practical terms? Here’s a practical example of Forbearance in action.

The bank is not forgiving payments or forgetting payments. They’re going to figure out what they are delaying the payment on, and then tack it on, either in a lump sum (OUCH) or divided evenly over a year or so. But This math on this example provides a perfect example of how this can be a slippery slope and dangerous.

One option I have heard, which could be a much better option if you’re eligible, is that some lenders are offering to let their borrowers REFINANCE to a lower rate, and are doing so with no docs and no fees. If you have a higher than market rate mortgage, this could help lower your payment, but again, it won’t stop payments. But if you have rates in the high 4% or higher, this may be the most opportune time for you to Refinance to a lower rate! It’ll save you some money every month.

If you’re in a pinch, there are other options before you touch the mortgage one. Remember, the lenders are NOT forgiving loans, simply kicking them down the road a bit, but will be asking for that money back, either in a lump sum, or spread out. But if you’re paying $2000/mo now, and they save you 3 months, that’s $6000! Even if they give you a year to pay that back, your payments will go from $2,000 to $2,5000/mo, which is a BIG increase!

If you have any questions about this, please, give me a call and we can discuss. That’s why we’re here!

-GZ