+1 vote
My friend has a USDA loan and I am trying to help her with her finances.  She recently lost her job in JUne, but just gained re-employment in late November.  She told me that in July she put her mortgage on hold or in moratorium.  I asked her if she is penalized for this.  She said yes, but doesn't understand how she is penalized.
asked Dec 8, 2017 in General Financing by anonymous

2 Answers

+1 vote
A moratorium, forbearance or deferment -- these terms all mean the same thing -- means that your lender allows you to suspend making payments for a limited period of time. Lenders might do that if you experience a temporary setback, knowing that soon enough, you'll be able to resume repayment.

You are penalized because mortgage payments have a big effect on your FICO credit score and credit history. Missing mortgage payments does serious damage to your credit. Even if the lender approves this, your payments are likely to be reported as late, or your loan may be tagged with the code meaning that you have not repaid it as agreed.

Other things that might be considered penalties by some is the fact that the lender does require repayment -- you'll either have to "catch up" the past-due balances over time with a higher mortgage payment, or the lender adds the unpaid amounts to your loan balance. That results in a higher loan amount, higher payment and additional interest.

But if a moratorium, forbearance or deferment gets you out of a jam, be grateful. The lender COULD have initiated foreclosure proceedings instead. Fortunately, they hate foreclosures almost as much as borrowers do.
answered Dec 8, 2017 by GinaPogol (47,650 points)
0 votes
There are times where lenders will not ding your credit when your loan is placed in temporary forbearance due to extenuating circumstances.  For example, my employer was headquarted in New Jersey when Hurricane Sandy struck the EAST COAST. Wiped out all computers. Chase Bank gave me a 6 month forbearance where I did not have to make any payments. They did not report any late payments. The amount not paid was added to the balance of the loan. If the customer service representative shows hesitation, ask to speak with a supervisor.
Gustan Cho
answered Feb 10, 2018 by GustanCho (106,540 points)

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