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Facts about Forbearance

What is Forbearance? Forbearance is an agreement between a lender and a borrower to temporarily suspend debt payments. For mortgages, lenders may opt to foreclose on borrowers who are unable to make payments. To avoid a costly foreclosure, the lender and the borrower can negotiate a forbearance agreement to allow the borrower to catch up on payments. For student loans, forbearance postpones payments under certain hardship conditions; however, interest continues to accrue on the principal balance.Forbearance Facts that could save you from trouble later…

3 things to consider about forbearance, before you take action:

– A forbearance agreement is actually a form of loan default, based on a temporary hardship that allows you to make a reduced payment (or no payment at all) during the terms of the forbearance. Although according to the CARES Act a servicer may not require proof of hardship, this program is not designed for you to take if you are able to make your payments.

– While the forbearance won’t affect your credit score, it will still be on your credit profile. This means it could be the reason you are denied a mortgage in the future, whether a purchase or a refinance of your current mortgage. It could even stop you from selling your home in the next 6-12 months because you may not be able to get financing for a new home.

– Your payments are not just tacked on to the end. While this is a possible scenario, this deferment is not the usual process. Instead, it is more likely your missed payments will be due at the end of the forbearance period, in either a lump sum or possibly spread out over a longer timeframe (such as a year). So if you’re able to make your payment now, you won’t have saved anything – you’ll just have a larger payment to make in a few months and have affected your ability to obtain a future mortgage in the process.

If you’d like to know more about your options, please contact me anytime and we can talk about it. I can put you in touch with a mortgage professional who can help.

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