Covid-19 Crisis - Take Forbearance or Spend Reserves?

Covid-19 Crisis - Take Forbearance or Spend Reserves?

Member since 2018 · 14 posts · 1 vote

Looking likely that many lenders are going to offer Mortgage Forbearance such as reducing payments for a few months or suspending payments for a few months. Landlords may lose some rent or need to allow delayed rent payments.  It's my understanding that this forbearance is not free money - rather, you will either extend the mortgage longer at the end, or catch up with increased payments on a payment plan after the crises resolves.  

And interest would still accrue during the forbearance, so when you return to making payments, the first few might be all interest to catch up there.  So you get out of payments for some months, but stop paying down the principle and probably pay more interest overall. 

So assuming you have the recommended healthy reserves that can cover six months of payments, and mostly stable renters, what's the strategy?  

1.) Skip some mortgage payments and take on more interest and/or time for the loan? 

 2.) Spend down your reserves for a bit if rent is lost/delayed, and stay on track with your mortgage sched - keep knocking down that principle?

Obviously circumstances will vary, but is there an overall financial strategy to one or the other?

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Peoria, IL · Member since 2013 · 967 posts · 383 votes
6y

I want as much cash available to me.  Hopefully CV passes in a month.  What if we go into great depression that lasts 18 months?

In couple months we should have alot more info.  If you defer the payments, you can always pay down your loan.  if you don't defer they won't let you take back your money. 

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  • Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y

    I want as much cash available to me.  Hopefully CV passes in a month.  What if we go into great depression that lasts 18 months?

    In couple months we should have alot more info.  If you defer the payments, you can always pay down your loan.  if you don't defer they won't let you take back your money. 

  • Real Estate Professional · Las Vegas, NV · Member since 2013 · 225 posts · 74 votes
    6y

    I doubt COVID will be over in 30 days.It took China at least 3 months, and they were able to take actions that would be politically impossible here.

  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    I would do what you are comfortable with should this go on for a bit.  It depends on your situation-your reserves, your income (not rental income, but your regular work) and your bills.  If you have a job where you might be laid off or your pay reduced, I would do what you can to reduce your expenses.  It also depends on your tenant's job.  i have one who is retired, so her income won't change.  A few of the others work for themselves-again their income might go down.

  • Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
    6y
    Originally posted by @Kirk R.:

    I want as much cash available to me.  Hopefully CV passes in a month.  What if we go into great depression that lasts 18 months?

    In couple months we should have alot more info.  If you defer the payments, you can always pay down your loan.  if you don't defer they won't let you take back your money. 

    I don't anyone has ever mentioned having a deferment for mortgages.  Forbearance is quite different, and not nearly as advantageous.

  • Kenneth GarrettPro Member
    Investor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
    6y

    @Steve Q.

    It’s definitely a strange time.  This crisis has everyone wondering what’s going to happen from your tenant getting sick or you getting sick.  Will the health crisis end in 60 days, but were left with a terrible recession with the aftermath.  If you have been able to keep reserves in place this is what there for; an emergency.  I would dip in for the next 60 days and see where we are.  I hate paying more and the banks benefit even further.  

  • Rental Property Investor · San Francisco, CA · Member since 2016 · 215 posts · 42 votes
    6y

    @Steve Q. - can you confirm how interest is accrued during forbearance? Is interest applied to the entire missed monthly payment, the portion of the payment that is principal?

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