The COVID-19 Coronavirus has led to some challenging times for all of us.
The Government has created the CARE Act, to assist homeowners whose income may have been adversely impacted by the coronavirus. One of the components of the CARE Act is the possibility of mortgage forbearance.
Forbearance is often misinterpreted. And while it is intended to help, it can have some dangerous repercussions. Many people are mistakenly thinking that forbearance equals forgiveness. It does not. Forgiveness implies that money won’t need paid back.
Forbearance is the lessening of mortgage principal and interest payments over a short period of time. That money is then due in one lump sum after the forbearance period. For example, if you cut your $1,000/mo. mortgage principal and interest payment to $500, you need to pay back $1,500 in a lump sum after a 3-month forbearance.
Think about when you buy something at a furniture store that offers “no payments” for 3 months. You still must pay for the furniture…the payments are just deferred.
But mortgage forbearance is even worse if the borrower has dug themselves in a deep hole and can’t catch up. Should this happen, the lender will enforce their right to be paid, which may cause the borrower to be foreclosed upon. They could lose all the equity in their home in the process.
Forbearance is designed to help those as a measure of last resort. It is not a free pass and may have serious consequences.
Here are some other things to consider regarding mortgage forbearance:
Down payment and terms shown are for informational purposes only and are not intended as an advertisement or commitment to lend. Please contact us for an exact quote and for more information on fees and terms. Not all borrowers will qualify.