Before accepting payment deferment options, ask what happens afterward…

by kelsa8lynn

I called my bank today to ask about temporarily suspending my mortgage payments. I’m a small business owner and while I’m OK during this time, I was curious what the process was like or what they were offering. I’m also a financial coach and wanted to give my clients a head’s up of what to expect if they were thinking of pursuing this option.

I called and was informed that I could apply for a 90-day protection, which essentially meant no penalties, fees or negative credit reporting for 90 days. Sounds nice but…

Concern #1: They wouldn’t provide me with any documentation in writing until after I applied.

I then asked about what happens after 90 days and the Customer Service Rep could not tell me. Granted, I do believe she simply doesn’t know and this situation is new for many of us.

I then asked “What have you heard MIGHT happen after 90 days?”

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She then said she’s heard it’s based off the investor of the loan so it will be up to them but she’s heard of 3 possibilities:

1) The 3 payments get added to the back of the loan (essentially extending it for 3 months)

2) The amount missed gets added to the balance and is capitalized.

3) You will have to make the back payments or be forced to do a loan mod.

That last option is troubling for a lot of people and I have a feeling they don’t realize it until the time comes. She was not able to tell me if the interest rate would be different or what the modification would look like. For us, we have a great interest rate and a loan mod could result in a dramatic difference over the life of our loan as far as interest is concerned.

I chose not to move forward with the application until there’s a more concrete plan or policy on how these will be handled on the back end (after 90 days).

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My concern is that a lot of people will not consider “what’s next” when looking for help today with their financial stress. They will simply jump at the chance to postpone their largest bill – kicking the can down the street and possibly creating a bigger problem later.

Not every bank is the same so please make sure you encourage people to ASK what happens with these missed payments after 90 days. Be aware of the LONG-TERM impact as well as the SHORT-TERM with these kinds of things!

There were so many loan mods back in ’08 & ’09 that were disastrous for borrowers. Please let’s not repeat that mistake with Coronavirus.

 

 

Disclaimer: This is a guest post and it doesn’t represent the views of IWB.

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