During these uncertain times, many people are struggling with the question, should I request a mortgage forbearance from my lender. That is not a simple question to answer unless you know the reasons why you need to request a forbearance and what the ramifications are.
First question is, can you continue to make your mortgage payments? If the answer is yes I can, then the answer is obviously no you should not request a forbearance. If the answer is not, then yes you should request a mortgage forbearance.
If however the answer is yes, but you won’t be able to afford something else like utilities, gas for your car to get to work, food for the kids, medication or so other necessity, then you probable should request a mortgage forbearance from your lender.
What is a Mortgage Forbearance?
Forbearance is when your mortgage servicer, that’s the company that sends your mortgage statement and manages your loan, or lender allows you to pause or reduce your payments for a limited period of time.
Forbearance does not erase what you owe. You’ll have to repay any missed or reduced payments in the future. So, if you’re able to keep up with your payments, keep making them. The types of forbearance available vary by loan type.
Source: https://www.consumerfinance.gov/coronavirus/mortgage-and-housing-assistance/cares-act-mortgage-forbearance-what-you-need-know/
You will eventually owe the misted payments. Even if your payments are added to the back of the loan, which they mostly will be, when you start making your normal payments, the principle vs interest ratios will reset and less of your monthly payment will be applied to the principle reducing your mortgage balance.
Let’s say you owe $200,000 that you took out 2 years ago and your monthly payment is $990.42. Your next payment would be broken down as follows:
- $323.75 to Principle
- $666.67 to Interest
If you got a 6 month mortgage forbearance and all the back payments got added to the end of the mortgage, you would now owe $205,942.52. Your next payment would be broken down as follows:
- $303.92 to Principle
- $686.50 to Interest
In a normal mortgage forbearance, your credit report would also reflect a mortgage forbearance agreement with the lender. Because of the CARES Act, the forbearance may not appear on your record.
As long as you understand how a mortgage forbearance works and how it will affect you, then I would say that taking a mortgage forbearance may be the best option for you at this time, but as always, seek your own council to make the best decision for you and your family.