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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Mortgage Forbearance vs Mortgage Refinance
Many individuals in the country are facing hardships and have lost their jobs due to the current pandemic.
If you are lucky enough to have not been laid off during the coronavirus pandemic, and still concerned about your future finances, this post is for you.
In this post, we will know the pros and cons of mortgage forbearance vs mortgage refinance.
What is Mortgage Forbearance?
According to the CARES Act and the FHFA rules, individuals who are affected and facing financial hardship due to the current pandemic, are allowed to pause their payments for the next six months.
The lenders who are servicing the loans backed by Fannie Mae, Freddie Mac, and HUD are supposed to provide forbearance aid to such individuals without having them go through any hardship.
This could be good and bad. Let us take a look at some pros and cons of mortgage forbearance.
Pros of Mortgage Forbearance
1) It will help you to get through this hardship by giving you time to get back on your feet financially.
2) You can pause or reduce your mortgage payment without affecting your credit score negatively.
3) Once you are in a forbearance agreement, you will avoid late fees and penalties, according to the CARES Act.
4) The mortgage forbearance is going to help you avoid foreclosure.
Cons of Mortgage Forbearance
1) Mortgage forbearance does not erase what you owe. This is not interest rate forgiveness.
You might have to come up with the lump sum for the amount that you owe to the lender once the mortgage forbearance is lifted, whether you go for full or partial forbearance.
2) There are uncertainties with what happens to your escrows. You might have to pay them separately and also could be increased once the forbearance is lifted.
3) If too many people opt for mortgage forbearance, this could have a massive effect on the housing and mortgage market.
4) If you choose to go for mortgage forbearance, your interest rate and mortgage payments remain unchanged. If your lender decides to adjust the forbearance amount into your future monthly payments, your payments will increase.
5) You are not allowed to refinance your mortgage once you are in mortgage forbearance.
What is a Mortgage Refinance?
A mortgage refinance is a process in which you pay of your current mortgage balance to acquire a new one for the reason of lowering your interest rate, monthly payments, or getting extra cash in your hand.
In these difficult times, if you are lucky enough to still have a job, you might as well get an option to refinance. Let us take a look at the pros and cons of refinancing your mortgage at this time.
Pros of Mortgage Refinance
1) You can refinance your mortgage and get lower your mortgage payments to reduce the hardship.
2) You can pull cash out from your home equity to ensure you have emergency funds available in the current situation.
3) If you close on the refinance at the beginning of the month, you can skip a few month’s payments by paying the interest in advance through your loan without increasing the payments.
4) You can get the refund of the taxes and insurance after the refinance, which is sitting in your escrow account, and which can come in handy in the current situation.
5) You can refinance to consolidate your high-interest debts like credit cards, car loans, student loans, or personal loans and save some money by making one single lower mortgage payment.
6) If you have a co-applicant who is working, you could still be qualified for a refinance.
Cons of Mortgage Refinance
1) You still need to be qualified based on your income, which means if you have lost your job due to the current pandemic, you may not be able to refinance.
2) With refinance, there are closing costs involved, which are, in most cases, be added to your loan amount.
Conclusion
The time is solemn for all of us. This pandemic has fiercely affected many individuals and families. If you have lost your job or have a reduced income and you think that you should get a forbearance, maybe you should get one.
However, if you or your co-applicant is still working and thinking of getting a forbearance, we would suggest at least checking refinancing options and decide for yourself which one would make better sense.
