Forbearance… how much does it really cost?

Many people continue to discuss the condition of America today and what economic impacts are going to take effect when the nation is back up and running. As we continue to stress, real estate is different from city to city and state to state, but it’s also important to look at overall patterns of home activity as it relates to the national economy. Back in 2008 one of the drivers of the economic downturn was that many Americans were using their home as their personal ATM to buy cars, furniture, and go on vacation. The graph below shows an example of this behavior leading up to 2008. This resulted in many people ending up owing more on their home than it was actually worth. Since then, lenders have tightened up and appraisers have become more strict. Additionally, most lenders and consumers have learned from past behavior and are cautious as they move forward. Along with that,1/3 of homes in America are actually paid off and have no mortgage. About 25% of the remaining 2/3rd  have at least 50% equity in their home.  This means that close to half of the houses in America have at least 50% equity or are paid off. This is important to remember when we hear rumors of a housing crisis.

We cannot discuss equity and mortgages without touching on forbearance.  PLEASE make sure that you are aware of the terms.  Mortgage forbearance is one of several options being offered to help Americans suffering as a result of pandemic control measures, and in most cases allows for the postponement of mortgage payments under an agreement with the lender. Forbearance terms can vary, and borrowers should make sure they understand what their loan servicers will require. Some services are offering to tack deferred payment amounts on to the total loan balance, while others are requiring deferred payments to be made in a structured plan at the end of the forbearance period.  That means you have a higher monthly mortgage until you pay back all that you owe. Also, should you decide to refinance for any reason you will not be able to because your loan is in a forbearance agreement. For some, mortgage forbearance might be the relief much need during uncertain times, but for others, it could come with some unwanted strings attached. The most important thing you can do is make sure you understand the full ramifications and consult not only your current loan servicer (the person that sends you the bill) but also a local lender to make sure you are making the right decision for your situation.