Should I take Forbearance to pay down student debt?

Question

I am currently in grad school working on my MBA, and have been paying tuition as I go as much as I can. If I am able to put my mortgage in forbearance just for 3 months, I will graduate completely debt free by allocating that cashflow towards paying tuition. I dont plan to purchase my next property till  Q1 2021, therefore my credit will be back to normal with more than enough time. I also read that once out of forbearance, 3 consecutive payments will be needed and lenders will be able to lend to me again, which would be Oct 2020. I've been researching the pros and cons, but to me this still seems like a smart move to move the 3 payments to the back of the loan, I just want to make sure my payment doesnt increase to much as this property will cashflow hard once its turned into a rental. What do you guys think?

Melissa Gittens · Answer

I would never suggest taking a forbearance on a mortgage. It seems to much of a gray area in my opinion and rules do change. So today they may say 3 months consecutive payments but when we are in the clear of this pandemic we don't really know what the lending market will look like in the future. I wouldn't do it. Just continue to pay your student loans as you would normally and show that good payment history. I think lenders will look at that when you go to get a loan as there would be no negative impacts just good payment history.

With a forebearance you will probably have to explain why you did it. The less explaining you have to do with a lender the better

Kyle J. · Answer

What I read in that article is that a borrower ”will be allowed to get a new mortgage three months after their forbearance ends and they have made three consecutive payments under their repayment plan, payment deferral option or loan modification.”

Just because a borrower is “allowed” to get a mortgage, doesn’t mean all the lenders will want to lend to them. Will some? Probably. But I’m betting their options will be more limited.

Think about it. If you were a lender and you had to choose between two borrowers, one who showed a history of requesting forbearance and one who didn’t, who would you lend to?

Coincidentally, there was just another post with some more discussion on this topic here:

https://www.biggerpockets.com/forums/49/topics/836260-mortgage-forbearance-latest-info

All I’m saying is, I’d think twice about it if you don’t really need it and you think you might need/want to apply for another mortgage in the near future. It could come back to bite you.

Kyle J. · Answer

If you're going to be in the market for a loan soon, and you don't need to take the forbearance, I wouldn't do it.

I don't think anyone knows for certain how lenders will look at a forbearance in the future, and each lender might look at it differently.  But you should read this post to see some varying perspectives and how at least some lenders are already looking at it negatively:

https://www.biggerpockets.com/forums/49/topics/830208-mortgage-forbearance-ramifications

Twana Rasoul · Answer

@Simrun Mirchandani If you are able to make your payments and your situation has not changed due to the current crisis, you should make your payments.  It’s the right thing to do.

Steve Vaughan · Answer

Then why ask us?  And are you sure your lender will tack it on the back end vs requiring it all month 4?

If I were a lender I would start asking - Have you been granted forbearance in the last x years?  I bet the form 1003 will begin to ask with foreclosure and deed in lieu.

But, do what you want.  How much are we talking about anyway?  $1000 a month?  You said it cash flows well. For a few months 'convenience', you're risking your future borrowing power.

Michael Noto · Answer

Not worth the potential risk of what lenders may think down the road. If you can afford to pay your bills, pay them.

Michael Ohara · Answer

Seems student debt would be "less costly" than using cash to catch-up your mortgage and the ding you may take from some lenders.

Simrun Mirchandani · Answer

https://www.marketwatch.com/story/mortgage-regulator-to-loosen-refinance-restrictions-for-home-loans-in-forbearance-2020-05-19 This recently came out showing only 3 consecutive payments would be needed after forbearance ends to qualify for new credit.

Max Versteppen · Answer

If your finances haven't been significantly impacted by the coronavirus, you may decide to keep making monthly payments.

"There are some people who have no problem continuing to pay, and they don't want to have to deal with reminding themselves coming September 30 to start paying again and get it back onto autopay," says Klein.

He also points out that by waiting to make payments until October, you risk forgetting to make payments later or set up autopay again, because you're out of the habit.

Should I take Forbearance to pay down student debt?

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