Don’t Confuse Forbearance With Forgiveness

Mutual Funds

I have heard disturbing reports that some mortgage borrowers who are able to make their monthly payments have opted to take advantage of the forbearance option offered by lenders — evidently because they view forbearance as a benefit. It is a benefit for borrowers who can’t make the payment and, if not for forbearance, would lose their home. It is not a benefit for borrowers who can meet the payment because it will result in larger payments in the future, an extension of the payoff period, or both.

Lenders have contributed to this confusion by failing to clarify the forbearance process. I have exchanged emails with representatives of one of the largest lenders in the country on how their forbearance program works, and their explanations are utterly useless. They came out of the bank’s PR department which clearly did not understand the program.

To meet the pressing need for clarity, I asked my colleague Allan Redstone to fashion a spreadsheet that would capture all the nuances of forbearance. The spreadsheet allows users to enter the current status of their mortgage and a desired payment deferment period. The spreadsheet shows three possible recovery methods:

  • Increase in the monthly payment after the deferment period ends. The new payment goes to term.
  • Extension of the payoff period. The initial monthly payment remains unchanged.
  • Lump sum payment after the deferment period ends. This returns the payment and the payoff period to where they were before forbearance.

The table below is drawn from the spreadsheet. Any borrower can compile a similar table that applies to their mortgage. The forbearance calculator spreadsheet is available on for free on my web site.

(The table is based on a current mortgage balance of $100,000, an interest rate if 4.000%, monthly payment of $527.84, and a remaining term of 300 months.)

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