If you’re dealing with hardships that make it a challenge to pay your mortgage, you may be looking for ways to ease the burden. Mortgage forbearance is one such solution. It enables you to put a hold on your mortgage payments for a set period, which can provide some much-needed relief. 

While forbearance is a common option for homeowners in need of a little financial relief during difficult times, there is another: a sale-leaseback. Here, we’ll compare these two solutions so you can find what works best for you. 

What They Are

Mortgage forbearance is an agreement between you and your lender that involves temporarily pausing or lowering your monthly mortgage payments. It doesn’t forgive your mortgage, but it does defer your regular payments for a set time. Once your forbearance period is over, your payments resume. 

A sale and leaseback (also called a sale-leaseback) is a solution in which you sell your home to a company. Instead of moving, however, you lease your home back from the company. You negotiate a lease fee with the company, which you then pay each month instead of your mortgage payment. 

Comparing Forbearances and Sale-Leasebacks

Now, let’s go a little further into detail about mortgage forbearance and sale-leaseback programs to help you figure out which solution might be the best one for you.

Mortgage Forbearance

With forbearance, you don’t get rid of your current mortgage. Instead, your lender places a temporary hold (or reduction) on your required monthly payments. It doesn’t eliminate your payments, but a temporary stop can be just the relief you need during financial hardship. 

So, what happens when your forbearance period ends? Just before the end date, your lender contacts you to go over your options for repayment. While forbearance means you don’t have to make payments during the period, interest still accrues, and you’re responsible for paying off the amount you put on hold.

When it comes to repaying the total that accumulated in forbearance, you have a few options. One is to repay the balance in full. Fortunately, you don’t have to pay it off all at once, though. 

You may also be able to negotiate a repayment plan, which involves paying your regular monthly mortgage payments plus a little extra until your mortgage is current again. 

You may also choose to defer the payments until the end of your mortgage term, which means you’ll be paying on your mortgage for a bit longer. Or, if you can’t afford your original monthly payments, you can talk to your lender about a loan modification. 

Learn more about how loan modification and other loan options work. Check out our comparison of a loan modification vs refinance.

Sale-Leaseback

A sale-leaseback is a bit different than mortgage forbearance. Instead of deferring your payments for a set time, you sell your home to a leaseback company. The company pays off the remaining balance of your mortgage, and you receive the remainder of the sale price in cash. 

At first glance, this might seem like an undesirable option, especially if you don’t want to move. The beauty of a sale-leaseback is that you don’t have to. Instead of packing up and moving (which you can do), you have the option to enter into a lease agreement with the leaseback company. Instead of a mortgage payment, you pay an agreed-upon monthly lease, which is typically more affordable than what you used to pay for your home. 

Staying in the home you just sold is only one of the benefits of a sale-leaseback. The company that purchases your house takes on other financial obligations you were once responsible for, such as property taxes. You also get to tap into the equity in your home, which can help you to consolidate other debts and alleviate more of your financial burdens during a hardship. 

There are a few things to keep in mind when it comes to a sale-leaseback. For one, you do lose ownership of the home. You can no longer make changes or upgrades to the property without first consulting with the leaseback company. If the property increases in value, the company benefits from the appreciation. Additionally, you no longer get to take advantage of the tax breaks for homeowners, such as the mortgage loan tax deduction.

Key Takeaways

If mortgage forbearance doesn’t make financial sense for you, perhaps a sale and leaseback might. Before making a decision, look at your financial situation and your future goals, talk to a financial advisor, then consider all of your options. If you do land on a sale-leaseback, Ribbon is here to help. Contact us today to learn more.