Can Mortgage Forbearance Hurt Your Credit?
Can Mortgage Forbearance Hurt Your Credit? and why
As we all know, the world is currently experiencing a financial downturn due to the ongoing pandemic, which has directly affected millions of jobs. As such, a lot of homeowners are bothered concerning their mortgage payments.
There have been some incentives by mortgage providers to soften the impact of payments for a period of time. This indeed was created by the Government to enable mortgage forbearance. So what then is mortgage forbearance?
What is Mortgage Forbearance?
Basically, forbearance is when a mortgage lender grants you some time or lets you pay up your mortgage at a lower rate. This method isn’t meant to scrap your payments as you would definitely be paying the reduced or paused payment back.
A lot of times, people mistake forbearance as a form of forgiveness, but this is entirely false. The bad thing about it is that even though you are let off from payments temporarily, the accumulated bill, which you owe may come in at once.
For better explanation, take for example your lender grants you six months of not paying up your mortgage. Once you reach your forbearance period, the accumulated six months, which wasn’t paid may appear in just one month.
Now, the forbearance isn’t intended for everyone. If you feel the need to exercise forbearance, you simply have to make it known to your mortgage servicer.
Can I enter a forbearance agreement?
The choice of entering a forbearance agreement is entirely up to you. Ideally, it would be unwise to enter into a forbearance agreement knowing full well that your household finances permits you to continue paying up your mortgage. If you follow up with payments without going through on the forbearance agreement, you would be eliminating the additional interest accrued.
Related: 3 Reasons Homeowners May Need Counseling Even After Owning a Home
Why mortgage forbearance hurts your credit
You should note that mortgage forbearance can have a negative impact on your credit. Most especially when you have agreed to the terms and conditions of making payments. Should you default either in skipping or making partial loan payments, then you would fall into a state of delinquency.
Delinquency oftentimes can have a major impact on your credit score, especially the fact that they are recorded on your credit report.
With the ongoing covid-19, which is indeed a special circumstance, mortgage payments, missed can be considered as technical delinquencies.
For this reason, mortgage lenders have the right to report such cases to the credit bureaus, but don’t necessarily have to. In order to prepare better, it is important to let your lender give you a proper insight in regards to their policy, so as to be better prepared for any outcome.
In addition, credit card forbearance can be damaging to your credit score in an indirect manner. Also, should you fail in making regular payments, especially when your card issuer has extended forbearance, the report you will likely get can hurt your credit score.
In conclusion, while it is important to get a mortgage forbearance, you should be fully ready to resume payments at the agreed time. You necessarily don’t want a closure of your account to be made known in your credit report.
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