The Mortgage Brothers Show
Mortgage Forbearance vs. Mortgage Deferment
In this episode of the podcast we talked about the difference between forbearance and deferment. We’ve been getting a lot of questions lately.
- What is forbearance?
- What’s the difference between forbearance and deferment?
- Does that just relate to student loans or is that also mortgages?
- What’s going on?
Forbearance vs. Deferment
Now, when we actually talk about forbearance or deferment, it’s usually in the context of a student loan. Both forbearances and deferment essentially press pause on a payment that is required. The difference, however, is that in the case of forbearance interest is accrued and in the case of deferment interest is not.
Now, the CARES Act allows customers, who are eligible, to apply for six months of forbearance.
Forbearance Before and After the CARES Act
In the past if you wanted to apply for forbearance you had to apply to your lender, the lender had to think about it, and then make a judgment call. They could always deny you.
Now, with the CARES Act, it seems that if you apply for forbearance you should be able to get it. You put your request in writing and simply state that as a result of the pandemic you have been negatively impacted, which is keeping you from being able to make your mortgage payment or make it as easily as you have previously been.
What you need to know about forbearance?
As always, we have to give a disclaimer. We are not attorneys, nor CPAs. We’re the mortgage brothers! Please consult any type of authority that you think is important to you before making the correct financial decision with regards to forbearance for you and your family. We’re just here to share what we know.
Now in the case of forbearance, as we’ve mentioned, interest accrues and you’re still responsible for those payments. We can’t tell you exactly how your servicer is going to structure it or require the payback, but it’s still owed. And there’s no reduction. So, if you let it accrue it’s going to become bigger at the end. So, we’re trying to be extra careful in how we advise our customers. This could be useful, kind of like a reverse mortgage, but not many people need a reverse mortgage. But it could also really come in handy for that person that needs to potentially forbear one payment or two.
What types of loans does this apply to?
This only applies to mortgages that are backed by Federal Agencies, so that covers Conventional loans (mortgage owned by Fannie Mae and Freddie Mac agencies), all of FHA loans, and all of VA loans.
Anything in the jumbo loan space, home equity lines of credit (HELOC), or anything that’s not a government loan really, you’re going to have to contact your servicer and see what they can offer you.
One good thing to note is that there’s no distinguishment between investment property loans for rental properties, second homes, aka cabins, versus primary. These are all basically loans that are government-backed, whether they’re for rental properties or not. So, the majority of what we’re talking about applies to everybody.
How is credit going to be affect with forbearance?
Part of the CARES Act holds that banks can’t report these forbearances as being late to the credit bureaus.
Now we’re not exactly sure how this is going to affect your credit. So, we’re advising our customers to make sure there is a huge benefit if they decide to go into forbearance due to the unknowns. You don’t know if you’re going to have enough money in the next five months to make your payment. So, you might as well make it every month if you can.
Make sure to read the fine print
Make sure to read the whole form. We know this seems basic, but somethings are different due to COVID-19.
When you fill out these applications they might be asking questions like, “Why can’t you make your payments?” or “Is there a problem you were facing that is temporary or permanent?”
Now, if you look down at the COVID-19 asterisk, it may say, that you are not obligated to answer any of those questions. As we’ve mentioned all you have to say is essentially,” Due to the pandemic I have hardship.”
Your bank may say just fill it out however you want and we’ll review it. But again, just don’t be surprised if you see those questions asking about the hardship.
As always, a big thanks for listening to or reading The Mortgage Brothers Show.
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Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisor before engaging in any transaction. Signature Home Loans NMLS 1007154, MLS number 210917 and 1618695, equal housing lender.