Mortgage Forbearance Plan Is Not Always a Good Idea – When to Just Say No

When faced with a default, it is not necessary that a homeowner and borrower has to face foreclosure. There are many ways enable him or her to avoid foreclosure and avail an affordable repayment option. One of the options that comes to mind first is forbearance. It allows the borrower to pay a very small instalment or skip it entirely for a few months and bring his debt current after that. While this may seem enticing, mortgage forbearance plan is not always a good idea and you must know when to just say no. Let us take a moment to understand when it does make sense and when it does not.

When it makes sense

Mortgage forbearance is a good option if and only if you are confident that your financial hardship is temporary. Examples of such case may include a scenario such that you lose your job but you are still sure that there is a steady demand for the sector and you are highly likely to get a similar paying job soon. Another such case is that if you are temporarily ill and are waiting for your insurance benefits to pay all your bills. The key is that you have high confidence that you will regain your repayment ability soon.

When it does not make sense

If you are facing any hardship that is unlikely to resolve soon, then forbearance will not help you. Example of such a scenario is if the sector in which you are employed is experiencing a long-term slowdown causing you loss of income. Another example may be long-term or permanent disability forcing you to take up a lower paid profession. In such cases, forbearance is not really a feasible solution since you will have to pay back all the pending payments including principal, interest, taxes and fees at the end of the forbearance period. If your earning potential is not back to the previous levels, you will continue towards default. In such cases, a more feasible solution is a loan modification. You can hire loan modification consultant such as to help you achieve a more permanent solution. With the help of loan modification professionals, you can achieve permanent relief by modifying the terms of the original loan to reduce interest or increase term, depending on what is agreeable to your lender.