Forbearance is a word that is frequently in the news these days. It is being used specifically regarding your home loan obligation. It should not be confused with forgiveness or with deferral. Let’s look at all three.
Forbearance simply means that what should be collected from you today will actually be collected at a later date. Thus it is still owed, just not immediately.
Forgiveness means the amount in question is no longer owed, now or in the future. While this is the best possible outcome from the borrower’s point of view, it is not the same thing as Forbearance.
Deferral means that the entire series of monthly payments have been halted (postponed) and restarts at a later date.
How This Impacts You
If your lender is going along with the federal call for forbearance, the due date on your loan’s monthly payment(s) has been delayed. Let’s look at an example. Let’s say your lender agrees to a 120 day forbearance on the principle and interest of your home loan payment of $3,000 effective May 1, 2020. Under such an offer:
On 5/1/2020 your lender expects a loan payment of $0.
Then on 6/1/2020 your lender expects a loan payment of $0.
And on 7/1/2020 your lender expects a loan payment of $0.
Finally, on 8/1/2020 your lender expects a loan payment of $12,000.
That’s right, after 120 days without a payment, you will owe all 4 payments at the same time.
Just as important, the forbearance on the loan payment is only on the amount going to principle and interest. Unless otherwise specified, the other impound amounts remain due. That is, you still have to make your monthly payments on the property tax impound and the insurance impounds.
So your monthly payment is temporarily reduced and then the difference is suddenly all due at once. This nasty surprise can be avoided by either ignoring the offer or by setting aside the amount you are saving that month in an account you will not touch other than to pay the home loan once the period in question is over.
Last but not least, if you are hoping to refinance into these all-time low rates, be patient. Lenders are intentionally dragging things out as they do not want to commit to a new loan just yet. Once we get a better feel for when people can expect to go back to work, financing and re-financing will once again be implemented with normal requirements and timelines.
If you need financing or re-financing, I have access to wholesale rates and can help you get a great loan. Contact me at 760 622 5087 or [email protected]