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Mortgage Forbearance vs Deferral

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Given the new COVID-19 crisis around the world right now, many tenants are left not being able to pay their rents leaving their landlords on the hook for their mortgages. However, the landlords have been counting on that income to be able to pay their mortgages given the myriad of different circumstances that could have happened to them due to COVID as well. What should you do if you can’t pay your mortgage right now? Is there help? Do you need help with your personal home as well?

Let us try to answer a few of those questions…

What Is Mortgage Forbearance?

Mortgage forbearance is a term that is used when speaking about pushing payments back or allowing a Landlord to temporarily not make their monthly mortgage payment.  At the end of a forbearance period, the amount of the payment deferred becomes due and payable as a lump sum.  A lot of the time the borrower will not realize this and will not be able to pay the full amount due immediately and therefore the lender will allow for a payment plan to be created.  

Mortgage forbearance reaches close to 7% of loans: Mortgage Bankers Association survey

What Is Mortgage Deferment?

Mortgage deferment is similar to forbearance in that the payment can be temporarily stopped, but a deferment payment may allow for the amount outstanding to be repaid over time or have it added at the end of their loan period.  

Why Do I Care What The Difference Is?

As a landlord owning investment property, this can change how you will select to temporarily stop your payments.  For example, if you have a higher cash flow property, then you may want to defer to just pay off the balance that you have deferred at an earlier time and you have the cash flow to do it when everyone is paying.  If this does not work, you may choose to go through forbearance because you know that when you sell the property you will be able to pay the lump sum without a problem, but right now you need the cash flow to be able to operate the income property. 

As always, in my opinion, it is best to keep your debts paid as current as possible because that money will come due at some time, so you might as well just pay it now if you can afford it, and if there is truly an issue with being able to repay then be upfront about it and take care of it up front with your lenders to show that you are being proactive about the problem. 

*Disclaimer* This information is for informational purposes only.  We recommend that you seek the counsel of a specialized loan broker, attorney, and/or CPA prior to making any investment decisions. 
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