70% of Homeowners Applying for Forbearance May Not Need It

Blog posted On June 16, 2020

As of last month, over 4 million homeowners now have mortgage loans in forbearance.  Due to the coronavirus pandemic, many American workers were laid off or furloughed due to temporary workplace closures and state and local social distancing ordinances.  A LendingTree study revealed approximately 70% of those homeowners with loans in forbearance reported the move wasn’t financially necessary and only 5% reported they would not have been able to pay their next mortgage payment without forbearance.

When your mortgage loan is in forbearance, your loan servicer stops taking payments for a predetermined amount of time.  During the forbearance period, your loan will still accrue interest and you will have to repay your missed payments either after forbearance has ended or later on during your loan term.  You should only request loan forbearance if you absolutely need it.  Forbearance is a measure designed to provide financial relief in extreme cases and does not forgive you of the debt entirely.  Kate Bugler, director of business development at Money Management International, told Forbes, “The forbearance really is an emergency break.  You don’t want to use it unless you really need it.” 

From the Lending Tree study, some of the homeowners who requested forbearance did so because they “wanted a break from their normal payments.”  Having a mortgage loan in forbearance will not immediately impact your credit score, but it could hurt your chances of getting approved for a new home loan in the future or even refinancing your current loan.  In May, the Federal Housing Finance Agency released guidance for Fannie Mae- and Freddie Mac-backed home loans in forbearance, stating borrowers could not refinance their mortgage loan until they’ve made three full mortgage payments after their forbearance period ends.

Forbearance provides relief for homeowners experiencing an extreme disruption of income, like a job loss, and helps reduce the risk of foreclosure.  If you stop making payments on your mortgage without talking with your loan servicer or requesting forbearance, you will have a delinquent mortgage and you could lose your home.  If you request forbearance simply for a break in your mortgage payments, you may regret the decision later.

If you are looking for a way to reduce your mortgage payment and you are still working, you may want to consider a mortgage refinance before resorting to forbearance.  With today’s low interest rates, even if you purchased your home in the past few years, you could qualify for a lower rate to lower your payment.  If you have equity in your home, you could even use a cash-out refinance to cover temporary expenses. 

Before you request loan forbearance, let us know.  There may be another option that better suits your needs.  If you have any questions about pandemic-related forbearance, visit the resources page at the top of our website.   

Sources: Forbes