You may have been hearing a lot of talk about this thing called forbearance. The problem is most people don’t know what it really means and therefore there is this false connotation of what it can do. Especially during the times of the Coronavirus, this word has come up a lot. Over the last month Covid has cost many people their jobs and therefore their abilities to take care of their families, and many of those people have a mortgage.
That’s where forbearance comes into the conversation.A part of the CARE act has recently created a forbearance program that allows borrowers to delay payments, but it’s not forgiveness. If you don’t take anything else away from this, let it be that. It is a delay, not forgiveness.
So, the real question is then, who should use forbearance? Only people who truly need it, honestly the government messed up when they said anyone could get by with the passage of the Care Act. There are many unintended consequences, the worst of which is loan programs going on away and driving up borrowing costs for everyone for many years. This can cost you way more money than you even owed in the first place! In fact, forbearance is very expensive. Not only are you pushing payments out, you are missing out on the principal and therefore you are losing money by not making payments.
To make it a little more clear, let’s lay out some numbers to figure out what forbearance can actually cost you. Say you had a loan that was $250,000 and you had the loan for 10 years at a 4% interest rate. If you paid on the loan for 10 years you would owe about $196,500, but if you were in forbearance for a year the balance would be about $203,000. In addition, you would have the principal and interest tacked on to it so you would owe another $14,000, costing you and a total of $20,000+… That doesn’t sound like a very good plan to me.
I know that your options may be limited, or you may feel stuck or confused about what to do. If that is the case, I would be happy to lend a helping hand and assist you where I can. Feel free to reach out to me with any questions!