Should you forbear on paying your mortgage?
With the corona virus, it's crazy.
And the government is saying, "Banks, you got to help people out.
Freddie, Fannie Mac, government institutions, you got to help people out.
And guess what their solution is?
A forbearance which means maybe 6 or 12 months of making stop on your payments.
Is this a smart idea to pocket and save all that money especially if you're in hardship.
Or could this be the dumbest decision of your life?
You have no idea how stupid of a decision that is.
You might get an initial benefit upfront but you're going to get slaughtered back.
Do you see all of the homes in the valley there?
Do you know how many of those people are currently filing forbearance right now?
Smart, stupid?
Check it out.
The definition of forbearance, the action of refraining from exercising a legal right,
especially enforcing the payment of a debt.
That's what Google says.
So, check it out.
Forbearance is essentially when a banks says, "Alright, we want you make your payment but
someone is leaning on us to give you some leniency like the government is doing right
now.
And what the government is saying is, "Banks, you're going to get all this homes coming
back to foreclosure unless you step in and actually create some leniency for them."
So, banks are saying, "You know what?
We'll give you 6 months."
Some banks are saying "We'll give you 12 months."
And then your payments are going to resume again.
By the way, you have to payback everything you didn't pay.
But we're going to give you some leniency.
So far, this sounds like a pretty good idea.
Check this out, this is straight from Freddie Mac.
We make homes possible.
Our Covid-19 response is we're going to assist borrowers by actually doing forbearance for
up to 12 months.
It sounds pretty neat, right?
Check this one out.
This one also comes from market place.
Mortgage forberance numbers up due to Covid-19.
They say that they're up to 2 million loans that people have requested for forbearance.
But I am not sure if this people actually understand what they're doing.
Check this one out.
This is from KERA.
How To Delay Your Mortgage Payments During The Covid-19 Pandemic.
And in this one comes from the federal housing financial agency.
There are coming out here and it looks so compassionate.
We're going out of our way to do this.
But I am about to show you why forbearance might end up being the dumbest decision that
you make financially this year.
There's a lot of people telling you that you should forbear and that you should pocket
the money.
Even Meet Kevin from YouTube on his channel made an entire video walking you through how
he did this with one of his mortgage bankers to give you a heads up on the exact step by
step process of initiating forbearance.
What people don't understand about forbearance is that after you forbear, you will be treated
different.
You credit will be treated different.
You will no longer have the credit worthiness that got you into that house or hometown or
home, whatever it is in the first place.
In 2008, we have the subprime bubble pop and it was total financial crisis.
There was blood on the streets and the start market.
Real estate has seen it's biggest crash since the Great Depression.
And it is cataclysmic.
For me and other investors that knew what were doing, it was actually the best of times.
Much like investing in real estate right now is.
Back when the 2008 bubble burst, however, people are not were not able to make their
house payments.
And there were so many foreclosures that were happening that banks said, "We'll do a forbearance.
Even on my home that I came from, my bank called me up and literally said, "We'd like
to restructure your loan.
Here's the paper work."
And I said, "I didn't even ask for it."
They were so worried about a house that big with that much mortgage going back to the
bank, that they dropped my payment is half.
And I got to enjoy that for a decade.
I didn't have to do anything to qualify for it.
But it was not a forbearance.
Here's what forbearance actually does: It reflects on your credit like a bankruptcy.
Which means that your credit is going to be so tarnished for like 7 to 10 years that you're
actually not going to be able to use your credit to get that next car or downsize, moving
to smaller house or upgrading to a bigger house or buying investment property.
Your credit is going to get hammered by a forbearance.
And you need to weigh that out and ask what is the value of my credit?
Now, I would be the first to tell you that I'm always finding credit workarounds.
In fact, I buy homes most every single day and I never use my own money and I never use
my credit.
And actually teach people how to do that.
You can click any of my links below found in any of my videos.
And I will show you how to be a super successful investor especially right now during covid-19.
It's like seriously the best of times.
So, there's always a workaround.
But it requires a higher degree of creativity.
You got to bring the deal to the table whether it's going to be money where someone else
would say, "I have it like an interest in wanting to put up my credit."
Because I'll pay someone for their credit.
They'll come into the deal and all of a sudden,voila!
I'm actually out doing another real estate deal.
But for most people, that is not ideal.
If their credit goes down, your purchase options are going to go down substantially.
Is there a chance that a structure of forbearance will reflect differently on your credit because
of covid-19?
Yeah, there's a chance.
There could be a policy change and that it won't reflect negatively on your credit.
But right now, no one is saying as much.
And so, right now if we default to the established president, it's going to hurt your credit.
So, should you forbear?
Well, let's do the math and actually place a value on your credit.
If you have a thousand-dollar-amount mortgage and the banks are willing to forbear for a
year, then technically, you could actually save $12,000.
Now, it is $12,000 you're going to have to pay to the bank later down the road.
Some people are saying you might even have lump sum, pay it all upfront.
So you should look into the terms with your bank.
But let's just say for all intends and purpose is that you get to save $12,000 that you don't
have to put out right now.
If you've lost your job, that could be a God sent.
If you're in a bad financial situation, that could actually be really hopeful and useful.
But I want you to understand that saving that $12,000 right now is going to reflect on your
credit as something a kin to a bankruptcy.
Which means that for years to come, your credits going to be in bad shape.
And your credit score may not go down.
But banks actually lending to you.
Banks actually letting you get a loan out a car or a next house.
It's going to be a no answer.
And you're going to wonder why.
And that forbearance is going to last there for a number of years, likely 7.
So, you have to ask yourself, "What do I value more?
My money or my credit?
And at what price point?"
In that example, $12,000.
You might be willing to ruin your credit over $12,000.
Or you might have plans for 1 or 2, 3 years down the road once the corona virus has corrected
itself and say, "I need that credit."
Part of being a financial genius is knowing all of your options and then making calculated
decisions.
Some risks are worth it, some are not.
I hope you enjoyed today's video on forbearance.
This is a message that isn't out there.
And if you think other people need to know about it, then I want you to share this video.
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We will see you tomorrow.