Why You Should Stay Away from Mortgage Forbearance Programs

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These are crazy times we are in. That being said, we will all get through this, hopefully sooner rather than later. 

As you are aware, many institutional lenders are allowing for forbearance (deferral of mortgage payments) programs. However, note that there is a big negative to getting on a forbearance plan that you should be aware of. While nothing is official on this subject as of yet, it is becoming very clear that if you go on one of these lender programs, it will be reported to the credit bureaus, and it will adversely affect your credit scores. Hard to say how much your scores will go down, but even more importantly, you will be precluded from obtaining institutional financing for up to a year, and maybe 2-3 years, as the lenders will view this as a “black mark” on your credit profile that will take 1-3 years to heal.  Hence, before you go on a forbearance plan, we recommend you seek other alternatives to stay current on your mortgage payments, such as making them from savings, borrowing from friends/family temporarily, borrowing against your retirement plan temporarily, getting a HELOC to cover your financial needs to tide you over until this economic calamity passes, etc.   

Expanding on the idea of borrowing from your retirement plan – as part of the care act, you can borrow against your retirement plan (IRA, 401k plan, pension plan, etc.) penalty free for up to 3 years. As long as you pay the loan back within three years you will not be penalized for taking it, plus you would be paying you plan the low interest rate the loan would cost you. You are effectively paying yourself. We feel this is a much better alternative for you to consider than going on a forbearance plan. A forbearance plan should be a last resort.

There are many experts predicting that we could see the best mortgage rates of your lifetime in the coming year(s).  Do you really want to preclude yourself from refinancing or buying another home if that occurs because you went on a forbearance plan?