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The Truth About Forbearance

As the coronavirus crisis began to affect the economy and cause many people to lose their jobs, lenders began to offer “forbearance” on loans, allowing borrowers to skip one or more mortgage payments. Although this seems like a generous offer, there are some facts you should know before accepting forbearance.

While accepting forbearance may help in the short-term, in the long-term forbearance can cause damage. With forbearance, the lender is not actually forgiving any monthly payments so you will still have to make the payments you are skipping. While some lenders will allow you to add the skipped payments to the end of your loan, others may make you pay all the skipped payments at the end of the forbearance term. This could mean that you must make multiple payments at one time. Another option may be to spread the cost of the missed payments out over the course of your loan, which would cause a slight increase in the monthly payment amount for the remainder of the loan. 

Another thing to keep in mind is that while lenders will not report these payments as “skipped payments” on credit reports, your credit report will have the term “forbearance” listed, which may make future lenders less likely to lend to you. This is especially true during the 12 months following the forbearance period, when refinancing may be desirable as interest rates are likely to be low. 

Considering these facts, it may be best to refinance your home at this time, as opposed to initiating any sort of forbearance on your current mortgage. When you refinance, you end up skipping one or two payments anyways. Also, the fees associated with refinancing are often added to the loan balance, so you do not have to pay out of your pocket to refinance. 

Depending on your personal circumstances and the terms offered by your lender, forbearance may still be the right choice for you. However, make sure to read the fine print on any forbearance offer and consider alternatives such as refinancing. 

Do you have any questions about forbearance? We are here to help. Find out what our team can do for you! Send us a message or give us a call now! 713-999-0124. 

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