Beware of This Potential Mortgage Payment Trap

Many relief programs are being offered as a result of the coronavirus. The author cautions about one for mortgages that could do more harm than good.

In the midst of the health and economics crisis that we are experiencing as a nation, many organizations have stepped up to the plate to help people in a variety of ways. As a financial planner, this immediately piques my interest as a means for people to find the help that they need. 

Internet service providers have been giving better access to folks so that they can work from home, many restaurants and grocery stores have made deliveries free, our government has worked diligently to put together a stimulus package and set regulation around things that will help its citizens, and mortgage lenders have begun to offer some of their own contributions.

In the last couple of weeks, I have spoken to dozens of federal employees that have told me about what their mortgage company was offering to them. Many of them were under the impression that they were being allowed to skip their mortgage payments for the next three months as a form of relief, and then they would continue to pay their mortgage normally after this period of relief expired. 

However, upon closer examination of the documents that their lenders provided them, it became very clear that this was not the case.

There are some lenders that are positioning these programs as a form of “forbearance” and defining it with conditions, and the reality is that they are reinstatement programs instead. 

When a homeowner is unable to pay their mortgage payments for a few months, they will fall out of favor with their lender and risk eventual foreclosure. Typically, they can negotiate something with their bank that involves paying back the amount due and the bank will no longer foreclose on the home provided they continue to make payments. This is called a reinstatement. This means that while you wouldn’t owe any payments for April, May, or June, you would owe fourmonths of your mortgage payments all at once in July.

The problem is that some homeowners are not fully understanding these terms and are confusing this with a forbearance repayment program. With a repayment program, the lender would allow the homeowner to stop payments and not hold it against them, just like in reinstatements, but in this case, the lender and homeowner would work out an agreement so that the homeowner is able to repay back the amount that’s due slowly. 

This is different with every lender, but it can sometimes be as simple as adding the 3 unpaid months over the next 12 months of regular mortgage payments. This is much more manageable than what I have seen lenders offer people lately.

It is critically important that federal employees read all of the legal language and terms of the agreement that you are getting in with your lender. Make sure that you’re careful not to fall into the trap of owing four months of your mortgage all at once. 

Ask your lender to work with you; often, if you show genuine effort in making the payments, many lenders may be able to work out some type of repayment program that is able to meet your needs. Just make sure to ask many questions and don’t sign the agreement if you don’t fully understand the program.

This content is considered to be informational only and is not intended as advice. Consult with an advisor before implementing strategies and changes to your finances.

About the Author

Thiago Glieger, AIF®, ChFEBC℠ is a Director and advisor at RMG Advisors, a premier private wealth management firm in the Washington, DC metro area. As fiduciaries, he and his team have served federal employees for over 40 years by helping them grow, manage, and protect their wealth. Their program, The Fed Corner, produces content specifically designed to help federal employees make better financial decisions.