Watch Out for Forbearance Program Pitfalls
You think, I’ll just call the bank and request assistance because you heard about the Forbearance Program. Forbearance is simply an agreement to hold back foreclosure. That has been the common theme during this time of uncertainty. The solution offered, the bank will either temporarily pause or reduce your mortgage payments for 90 days or more. Relief you think, but is this the route to take?
Right now, it’s easy to get behind but hard to get caught up. You will need to pay the past due payments from the last 90 days but you think, I will “cross that bridge when I get to it”. The bank is about getting that money so naturally you are required to repay those missed payments back. The big issue is most banks either want you to pay the past due balance in one lump sum or they will tack the past due amount to the back end of your loan and extrapolate it over the course of your 30 year mortgage. It will be very difficult to payback 3 missed payments in one lump sum, especially if you haven’t been working over the last few months. IF you get another job with a significant pay increase or IF you borrow the money from a family member or friend you may make that lump sum payment. Not realistic options then you think, “I’ll just put it on the backend of my loan”. But, in doing so you will end up paying much more than the few thousands in missed payments over the course of 30 years which then will pick up interest costs.
What needs to be understood is that if you are able to make your mortgage payment then continue making them. Don’t just stop making the payments and get in a forbearance program just because the bank is offering it or it seems like an easy way to keep larger amount of money during this crisis.
Getting behind on your mortgage is the first step towards heading to foreclosure. The key is to look down the road not just at the current situation. If you can make the next 3 months mortgage payment and pay all your other bills without being in a cash crunch, then that’s what you need to do. But, don’t f all behind on your largest investment and monthly payment. As a former foreclosure specialist at one of the Big 5 banks I saw time after time that once homeowners got behind on their mortgage they could not recover and a very high percentage of homeowners went into the foreclosure matrix and never came out of it. A forbearance program is for those who truly can’t afford to make their mortgage payment not for someone who just wants to “save” some money by not paying their mortgage. Don’t fall into that Forbearance Program Matrix trap!