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Mr. Feichthaler:
Due to the pandemic, I lost my job and entered into a forbearance with my bank, so I haven't made a mortgage payment in 12 months. Now, the forbearance period is over, and they are asking for a lump sum of the 12 months of payments. The bank is offering me a deferment, so that I can spread the 12 months of payments over time. Is this a good idea?
-- Calvin W.
Dear Calvin,
The pandemic has impacted us in many ways, and I am sorry to hear how it has impacted your family. It appears you are well versed on this topic, however it is not common knowledge what the difference is between a forbearance and a deferment. The forbearance, as you experienced, allows a borrower to temporarily pause payments on their mortgage. Banks allowed this due to COVID, but also will agree to allow borrowers to pause payments for an unforeseen illness, and other hardships. A deferment is a method to pay off the missed payments over time, rather than a lump sum. For many, a lump sum of 12 months of mortgage payment isn't possible, so a deferment is required.
Although both a forbearance and deferment have the potential to impact credit, in many cases it will not. Lenders have the ability to code the new payment plan to show you were not in violation of the terms of the loan. There are many options offered to borrowers that will avoid negative credit reporting, check with your lender. One action that will certainly impact your credit score negatively is a late or missed payment without an agreement in place. Therefore, for anyone who knows they will be unable to make payments as scheduled, reach out to your lender to determine your options. Don't hesitate to ask questions, such as confirming your interest rate, and the full extend of payments in the future.
Of course, the big negative in deferring back payments is that you will likely be in debt for longer. As a side note, if your mortgage is at an unattractive interest rate (greater than 4%), interest rates are still very low, and a refinance may be available to lower your monthly payments, and overall payments. Based on the latest economic data, a rise in mortgage interest rates appears very likely over the coming months. Along those lines, your lender may also agree to a modification, which could lower your payment as well.
Eric P. Feichthaler has lived in Cape Coral for over 33 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.
Mr. Feichthaler can be reached at eric@capecoralattorney.com, or (239) 542-4733.
This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.