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Mythbusters: Debunking Some Common Forbearance Misconceptions

Among the many impacts of COVID-19 has been a fear among homeowners about whether they’ll be able to make their mortgage payments. This collective worry has resulted in many having to learn what the word “forbearance” means. In the context of mortgages, forbearance refers to an agreed-upon time period in which borrowers will not be expected to make their mortgage payments. The intention is to provide some temporary relief — payment deferral, not forgiveness to homeowners in a tight situation.

That sounds pretty good, right?

But as with many things related to your financial wellbeing, forbearance is a complex option, and not a one-size-fits-all solution. In our COVID-19 Information Hub, you can find comprehensive information on the ins and outs of forbearance. But here, we have compiled (and dispelled) some of the popular myths surrounding forbearance, as well as answered some questions to help you understand what forbearance really is, and how to make the most of it.

Mythbusters: Debunking Some Common Forbearance Misconceptions

Myth #1: I will not have to repay payments I miss during the forbearance period.

No, no, and no. This is probably the most common, and potentially the most damaging, forbearance myth. Forbearance is designed to give temporary relief to people with short-term cash shortages. At the end of the forbearance period, missed payments will be due. Which brings us to our next myth…

Myth #2: I’ll have to repay the lump sum of any missed payments immediately when forbearance ends.

Not necessarily. Once forbearance ends, you will have to repay missed payments, but it won’t always be in one lump sum. That is one repayment option — called “reinstatement” — but it is not the only option. Depending on your circumstances, you may qualify for another arrangement that doesn’t require you to make up all of the missed payments at once. These include repayment plans, loan modifications, and Payment Deferral options. Everyone’s situation is different, and each have their own qualifications. Our Careologists will work with you to determine which is right for you.

Myth #3: Forbearance will hurt my credit score.

Again, not necessarily. During the forbearance period, negative credit reporting will be suppressed. This means that, if you abide by the terms of the forbearance, we won’t report these payments as “missed,” and your credit score won’t necessarily be affected. However, different credit bureaus have different methods of evaluating credit, so for answers about whether yours will be affected, you should contact them directly.

Myth #4: Forbearance always lasts a year.

Well, it can last a year, but it doesn’t have to. Part of TMS’s unique approach means offering forbearances in 90-day installments, so that we can more regularly evaluate the extent to which you need it. More contact with you means we have a better understanding of your situation, and you have a better sense of what your options are.

To summarize: It’s crucial, above all else, to recognize that missed payments will be due at the end of the forbearance period. There are many different ways to structure repayment. If you think forbearance might be the right option for you, don’t hesitate to get in touch with us, and we’ll walk you through the process.

I’m in forbearance. Now what?

Once you enter forbearance, you’ll want to develop a few habits that will keep you informed and prepared. You should view forbearance as a time to take stock, get organized, and figure out what you do and don’t need to come out the other end in better shape. As with many of the COVID-era changes to our day-to-day lives, the work you do to fortify yourself during forbearance will have long-lasting, positive effects. Here are a few ways to stay ahead of the curve.

Stay organized.

Of paramount importance during forbearance is knowing what you need to pay and when. To this end, keep relevant documents close at hand, so you can monitor your mortgage statements for errors or inconsistencies. Keep an eye on your mortgage statements, and if you’ve set up an auto-payment system, make sure it’s not still deducting the pre-forbearance amount. While, as we’ve said, negative credit reporting will be suppressed during forbearance, it’s also worth monitoring your credit score to make sure all is as it should be. Going the extra organizational mile will keep you up to date, and bring you peace of mind.

Get thrifty.

Now is a great time to take a close look at your regular expenses, and see which of them are really necessary. Do you really need to subscribe to Netflix, Hulu, and Amazon Prime? Do you need to eat carryout seven nights a week, or could you invest a little extra time in learning a new dish or two? Instead of more online shopping, why not take to YouTube and learn a new skill? There aren’t going to be any galas or proms anytime soon, so keep it simple — PJs and shaggy hair are all the rage these days.

Keep in touch.

If there’s one thing we’ve learned this year, it’s that the best-laid plans are often subject to sudden, unexpected change. Keep open lines of communication with your servicer so that you can be sure you’re always on the same page. Your income might be restored much sooner than you thought, in which case you can start making payments again, even during a forbearance. Or, you might need to request a forbearance extension. Either way, keeping all interested parties apprised of the latest developments will keep you in good standing.

If forbearance turns out to be the right option for you, it’s crucial to know what you’re getting yourself into, and how to make sure you’re successful after your forbearance. While your credit is protected during the forbearance period, if you don’t repay your payments skipped under your forbearance at the conclusion of your forbearance period or enter into another arrangement, your credit protections will end and your credit report will show that you’ve gone into forbearance and reflect your missed payments. These events will be on your credit report, potentially affecting how financial institutions see you. This could be the difference between getting and not getting another loan sometime in the future.

We at TMS pride ourselves on high-touch, high-quality customer service, and so we’ll do all we can to make sure we’re handling your loan in the best possible way. We know that the complexities of forbearance can seem intimidating. But with a little bit of prudence, management, and good old-fashioned common sense, you can emerge a more solvent, responsible and educated homeowner.

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August 26, 2020