Is it a good idea for people to take advantage of mortgage forbearance?

Do you think it’s a good idea for people to take advantage of mortgage forbearance? I called my Mortgage Company. They said that I was eligible. I’m considering doing it. I’m still working. There has been no impact to my income, but I would love to get a break on my mortgage payment. What are your thoughts?

Signed women in need of a break from mortgage payments

Damon Says:

I recently shared a story online about a client of mine who saved $12,000 in 6 months for emergencies. She was on it! What I didn’t mention is that she called me and told me that she called her mortgage company inquiring about a mortgage forbearance. I empathically asked, “WHY?” I told her you’re gainfully employed with 12-stacks in the bank. You don’t need a mortgage forbearance. She replied, I was going to take advantage of no payments and save more money. That might be your thinking as well - taking advantage of no payment to save money?

We experienced a financial market meltdown back in 1998. This meltdown forced me back into Corporate America. I got a job working for Merrill Lynch who was eventually bought out by Bank of America. My Title was Sr. Negotiator. People who had fallen behind on their mortgage would reach out to the Mortgage Company for help to avoid foreclosure.

It was my job to review the terms of the deal, evaluate borrower’s current financial situation and determine what was the best option, Loan Modification, Repayment Plan, Payment Forbearance, Deed-in-lieu of Foreclosure, or Short Sale.

Regardless of what program I thought was best, the borrower had to establish and provide proof of some type of financial hardship that caused them to fall behind. In addition, we had to establish that the worst was behind the borrower. I had to prove that my recommended option was affordable. Under my proposed new arrangement, borrower should be in good standing and able to meet mortgage payments going forward. If we could not qualify borrower under affordable terms, we recommended short-sale or deed-in-lieu of foreclosure. Under the last two options, borrower had to surrender property and move out.

The big difference between today’s Mortgage Forbearance versus a Mortgage Forbearance in general is the fact you do not have to show a financial hardship - job loss, medical emergency, death of a spouse etc.. Today, anybody can call and request a forbearance and be approved whether they are laid-off, furloughed, earning less income, or gainfully employed. That’s CRAZY!

In your case, given the fact that you’re gainfully employed with no negative impact to your income – I would advise that you DON’T do it.

Although your income isn’t impacted now. Who’s to say that this health and financial crisis will not have some type of ripple affect that will rear it’s ugly head in your industry in the near or distant future impacting your income - causing you to REALLY need a Mortgage Payment Holiday? And you have already used your lifeline? That would suck, WOULDN’T IT? Hopefully, it does not come to that.

I’m with you. I too can use a break from the payments on my mortgage. But I don’t want a temporary break. I want a permanent break. This is why I preach the idea of paying off your mortgage EARLY. Wouldn’t life be nice with no Mortgage Payment - EVER AGAIN? That is the type of break you’d really LOVE!

Guess what an unnecessary mortgage forbearance does? It DELAYS and POSTPONE the date that you will eventually PAYOFF your mortgage. It INCREASES the total amount of interest you will pay on this loan because longer term creates more interest.

Is that a break or an extended “Death Pledge”? Homework assignment: Look up the etymology of the word Mortgage, you’d be surprised to know what it means – I’ll tell you – “Death Pledge”. Do not take my word for it, verify - look it up.

Nike would advise that you “Just DON’T do it!” Only consider if you're in a financial bind. Even then, I'd recommend that you opt to seek a forbearance on credit cards and student loans first.

Do you have a question for Damon? Email me or message me on FB. I will answer all questions as time permit. If I use your question in my “Ask Damon” E-Newsletter, I will provide more detail. Do not fret, your identity will remain secret.

Disclaimer: The advice given in “Ask Damon” is based on facts presented within the question asked. In a Comprehensive Financial Planning environment advise is based on a more wholistic approach taking into consideration all pertinent facts and information gathered.
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Damon Carr
Money Coach and Personal Finance Columnist