This year has been really hard for a lot of people. Some cannot pay their mortgage and fear they may lose their home. But, there is good news. Banks are giving people a break, so they don’t have to pay their loans every month for a period of time. AND of course, there is a catch. By doing this, you are either adding the amount you didn’t pay to the total loan amount or will get a balloon payment notice that you owe it all in full by a certain date. These are called forbearances and deferments.
Forbearance and Deferments
Forbearance is when you are temporarily freed from paying your mortgage by the lender. It also could be they let you pay a lower amount than your normal monthly payment. This does not mean you get out of paying those missed payments. It just means you don’t have to pay the monthly mortgage for a period of time that you and the bank agree upon. Someone typically requests a forbearance when hardship or severe illness occurs.
Deferment means you are postponing the payment of your mortgage. It is a set period of time that you negotiate with your lender not to pay for your interest or principle on your loan.
When someone gets really sick or loses their job, they can negotiate with their bank for a forbearance or deferment on their mortgage payment. Both are typically are on your credit reports. But, there are new stipulations because of the CARES act that say your credit score cannot be negatively impacted if you negotiate a forbearance or deferment with your mortgage lender.
The main difference between a forbearance and a deferment is that the amount you owe the bank always increases with a forbearance. When you negotiate a deferment it can be interest-free for certain types of loans, but not always.
Alternatives to Foreclosure
When the pandemic first hit, a lot of people negotiated a forbearance. But, they did not realize they were going to have to bring all of those payments current at the end of the forbearance period. Now, people are worried they may have to foreclose on their homes because they still cannot afford to pay. But, there are plenty of alternatives besides foreclosure. Here is a list of solutions if you know anyone in this situation…
- Refinance to take care of those deferred payments after they have made payment arrangements with the lender and have made 3 on-time monthly payments under the plan.
- If someone has a retirement account, they can borrow from it to bring the payments current. Then they can do a cash-out refinance to pay back their retirement account loan.
- Most people have equity in their homes right now. So, it is the perfect time to sell and pay off the loan.