A reader wonders if they should take a forbearance offer even if they may not necessarily need it.

3 minute read

I’ve heard that lenders are offering forbearance agreements where you can skip payments without penalties. Is it a good idea to accept these kinds of offers? What is forbearance exactly? I’m still employed full time, but I‘m thinking I could use the money I’d save to pay off some other debts in case there’s a recession. What risks do I need to consider first?
– Stephanie in CO

Charles Puleri from CrossCountry Mortgage responds…

You’re lucky that you’re in a situation where you were not hurt financially by the pandemic. And in this case, I think you should go ahead and pay your bills normally since that will actually help the economy as a whole.

First, let’s cover the questions that you asked:

What is a forbearance agreement?

A forbearance agreement is a special agreement and or a temporary pause in making payments to a certain lender whether it be a student loan, a car loan, or a mortgage loan.

In the past few months due to COVID-19 (aka Coronavirus) most mortgage lenders and servicers have offered a 90-day forbearance to borrowers that have had their income affected by the coronavirus. In some cases, a lender may extend the forbearance period depending on the situation of the borrower.

What basically happens is the loan interest will still accrue over this time and depending on the lender they will either break up the money that wasn’t paid and spread it out over the following months after the forbearance period or they may tack it on to the end of the loan balance.

What are the risks/benefits?

I wouldn’t say there are necessarily any dangers to a forbearance when it’s used for the right reasons. It’s put in place to help a person or persons that need help to get their finances in order. In a case like this unforeseen pandemic, many people were caught blindsided and have no choice but to do a forbearance.

The benefits if used properly is that it gives someone some extra time to get their finances in order and to get back on their feet so they can resume making their payments on time and avoiding foreclosure proceedings and possibly lose their home.

The danger comes when some people are not affected by the pandemic and choose to use up the government funds and take away from the people that really need it. That’s why I say, in your situation, it doesn’t sound like you need it, so you should continue making your normal payments. It will be good for you and good for the economy to do so.

Can forbearance negatively affect someone’s credit?

For mortgages under the CARES Act, there should be no negative impact on a borrower’s credit score for payments missed during an approved forbearance. But mistakes can happen. As with everything else, I would double and triple check with your lender to make sure. You should also monitor your credit closely.

Advice for homeowners who are struggling to make their payments

I would suggest starting with an approved forbearance with your current lender or servicer.

I would do everything possible to get my finances in order in those first 90 days. This means possibly finding another job or think about changing careers. Unemployment insurance will help if needed but it won’t last forever.

Also, I would curb extra spending until my finances are back to normal. After the first approved forbearance is over and if you still need more help your lender may give you an extension on the forbearance. I have seen a second term of another 90- 180 days.

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About the Author

Charles Puleri

Charles Puleri

I am a residential mortgage expert with 21 years of vast experience structuring creative solutions ranging from high net worth clientele to repeat refi's and first time home buyers.

Published by Debt.com, LLC