Is your mortgage forbearance about to end?
Mortgage forbearance provided a lifeline for millions of homeowners during the most difficult months of the pandemic.
But with the end date for many forbearance plans rapidly approaching, homeowners will have to decide how to move forward.
So, you don't think you can afford to make payments once mortgage forbearance ends and you are ready to exit – now you are wondering what are your options? Here’s what you should know.
Mortgage forbearance end dates
Under the CARES Act, homeowners with conventional, FHA, VA, or USDA loans could request an initial home loan forbearance for up to six months. They could also request a six–month extension, for up to one year of total forbearance.
“Forbearance plans are based on when you requested them,” explains David Shapiro, president and CEO of EquiFi Corporation.
That means homeowners who entered forbearance plans early in the coronavirus pandemic are likely nearing their forbearance end dates.
For example:
Say you have a conventional mortgage loan
You initially requested forbearance on September 1, 2020
At the end of your six–month forbearance period, you requested a six–month extension
Your current forbearance plan would be set to expire on September 1, 2021
Remember that when you exit forbearance, you’ll need a plan to make up the payments you missed during that period. Here are your options.
Options after your forbearance plan ends
If you’re ready to resume payments at the end of the forbearance period, be prepared for what happens next.
“Forbearance is not loan forgiveness. Borrowers will still owe the principal and interest that they didn’t pay during the forbearance period,” notes says Dongshin Kim, assistant professor of finance and real estate at Pepperdine Graziadio Business School.
“Borrowers will need to make both the regular mortgage payments and also all the payments they missed while the loan was in forbearance.”
You will typically have several options for repayment once forbearance expires:
Full repayment, which is a one-time lump sum payment. It’s possible to pay back all the missed payments at once. But lenders are NOT allowed to require this. +9+
Make intermittent payments, meaning you repay the missed amount over 3–12 months on top of your regular monthly mortgage payments
Lengthen your loan term and pay off the missed amount at the end of the extended loan term, via additional mortgage payments
Payment deferral. This option lets you pay off the missed amount when the home is sold or refinanced, or at the end of the loan term
Pursue a loan modification. This helps borrowers who are at risk of default change their mortgage terms – usually including a lower interest rate, reduced length of the loan, or reduced monthly payment.
A new mortgage relief plan from the Biden Administration allows modification of eligible VA, FHA, and USDA loans, reducing monthly payments by 20–25 percent. The Federal Housing Finance Agency has similar options for conforming loans.
The right option for you depends on your current finances, employment status, and ability to resume mortgage payments.
When you contact your loan servicer, be sure to discuss every option in detail so you know exactly what to expect with the repayment plan you select.
Expect delays when contacting your mortgage servicer
The experts warn that you should anticipate a few possible snags and setbacks post–forbearance, especially when it’s time to contact your loan servicer.
“Loan servicing organizations are not all properly staffed for the expected volume of forbearances, and they can’t train support agents fast enough to meet their needs.
Even if you can’t get through on the first few contact attempts, don’t give up.
Keep a close eye on your credit report and score
If your mortgage has been in forbearance, check your credit report carefully.
CARES Act rules state that mortgages in forbearance should not be reported as having late or missed payments. And the forbearance plan should not harm your credit score.
But this is another area where mistakes can happen.
Remember, lenders and servicers have never before had to deal with mortgage forbearances on this scale. So it’s up to the borrower to be extra–vigilant and make sure nothing slips through the cracks.
Check your loan statements every month and stay on top of your credit report to make sure your score hasn’t been negatively impacted by forbearance.
Refinancing after mortgage forbearance
Refinancing after you exit forbearance could be a smart move.
If you’re able to lock in a lower interest rate and monthly payment, it could make resuming your mortgage payments that much easier.
That goes double for homeowners who decide to repay their missed loan amount by adding a little extra to each monthly payment.
Typically, you won’t be able to refinance right away. But you might be able to do so after you’ve been making payments for a few months.
For most major loan types – including conventional, FHA, and USDA loans – you need to have made at least 3 consecutive payments after exiting forbearance in order to be refinance–eligible.
But what if you are not able to refinance or what if the modification terms the lender offers are still not going to work for you? Well you still have another option - sell your house.
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