I came across an article on Yahoo Finance about mortgage payments during the pandemic. The title of the article is Joe Biden just gave homeowners an even longer break from mortgage payments. Basically, the article discusses the extension of the government’s mortgage forbearance program. This program was put in place so people can keep their homes during the COVID-19 financial crisis. Please refer to the article for more details about the program. What I want to discuss here is confusion between mortgage forbearance programs, mortgage loan modifications and mortgage refinancing.

Learn the Terms

First of all, a mortgage forbearance program does not allow you to altogether miss payments. However, it does allow you to postpone payments. You will have to eventually make up the postponed mortgage payments. In the meantime, you will not have to pay late fees nor will there be a negative impact to your credit score.

A loan modification is simply a change to the terms of your original mortgage. To qualify for a loan modification, you must be dealing with financial hardship, unable to pay your current mortgage payments, and show you can afford a modified payment schedule. This is different than a mortgage refinance in several ways. A refinance is a new loan that pays off your current mortgage and replaces it with a new one. Also, a refinance is often used to get a better interest rate. Those seeking a loan modification often do not qualify for a refinance due to a bad credit score.

These financial concepts are confusing to many of my clients. I find myself repeating “loan modifications are not the same as refinancing” over and over again. Loan modifications are not a good tool to negotiate more favorable payment terms.  They are only to be used in the most dire of circumstances. Loan modifications require a default and can’t be done during a forbearance unless there is a default. This last sentence sounds like a riddle. It is my job to figure out this riddle for you. So, before you make any decisions regarding mortgage forbearance, loan modifications or refinancing, please call Lucid Law. We are happy to discuss your situation.

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