Through the most difficult times of the pandemic, mortgage forbearance was a safety net for many homeowners. However, with many forbearance arrangements coming to an end soon, homeowners will need to decide on how to proceed.
What is a forbearance mortgage?
When your mortgage servicer or lender permits you to halt or lower your mortgage payments for a set period while you rebuild your finances, this is known as forbearance.
Timeline for the conclusion of mortgage deferment
Homeowners with regular, FHA, VA, or USDA loans might apply for a six-month deferment under the CARES Act. They may even ask for a six-month prolongation for a total forbearance period of up to a year.
Forbearance programs are dependent on when you sought them, therefore, property owners who began forbearance programs early in the coronavirus outbreak are likely approaching the end of their forbearance period.
Note that when you complete forbearance, you’ll need a plan in place to incorporate any installments you missed throughout that time. Brace yourself for what comes next and if you’re prepared to continue installments at the end of the forbearance term, be aware that you will be responsible for paying your regular mortgage and all its accrued interest you missed during the forbearance term.
When your forbearance period ends, you’ll usually still have a few alternatives. These are discussed below:
Whole payment- this is a one-time large amount payout, which oftentimes isn’t feasible for the borrower to make all of the missed payments at the same time. On the other hand, lenders are not permitted to impose this requirement.
Make periodic payments- which means you pay back the amount you skipped over 3–12 months in addition to your usual monthly mortgage payments.
You could also extend your repayment period and repay the outstanding amount with additional mortgage payments after the prolonged loan period.
Deferred payment- this option allows you to defer the missed payments till after the expiration of the original loan term.
Make an application for a loan modification- this assists borrowers who are at risk of default in changing their mortgage conditions, which often include a lower interest rate, a shorter loan term, and other benefits.
In all of these, the best choice is determined by your present financial situation, job position, and ability to begin mortgage payments.
When you call your loan officer, make sure to go through all of your options thoroughly so you know precisely what to expect from the repayment plan you choose.
Maintain vigilance over your credit report and score
Review your credit record thoroughly if your mortgage has been in forbearance. Because under the CARES Act, mortgages under forbearance are not considered late or missed payments, therefore, your credit score should be unaffected by the forbearance plan.
However, errors do occur in this area, so see it is your responsibility to be extra vigilant and ensure that nothing falls between the gaps.
Also, examine your mortgage reports every month and keep an eye on your credit report to ensure that forbearance hasn’t lowered your credit rating.
Stopping your period of forbearance early
You don’t have to wait for your six or twelve-month period of forbearance to end, you can choose to end it sooner as long as you are comfortable enough to pay back the missed months and continue paying your regular mortgage.
When you are ready to get out of forbearance, make a request to your loan servicer and make sure you’re familiar with your repayment alternatives so you can discuss them with your servicer.
Refinancing be after a period of mortgage forbearance
Refinancing after you’ve completed your forbearance period could be a wise decision, especially if you can secure a better interest rate and monthly amount, it will be fairly easy to resume your monthly repayments.
This is especially true for property owners who want to make up for a missed loan payment by paying an additional amount with each monthly payment. Although you won’t be able to refinance immediately, in most cases, after a few months of regular payments, you might be able to do so.
To be qualified for refinancing for most major loan types, including conventional, FHA, and USDA loans, you must have completed three successive payments after entering forbearance.
How to request an extension
The right procedure is that the loan servicers should call the homeowner thirty days before the forbearance term expires, To help them understand their repayment alternatives.
However, you don’t have to wait for your lender or servicer to contact you to learn about this alternative. Instead, take the first step by contacting your mortgage servicer far ahead of your forbearance expiration date if you need to extend your forbearance. Likewise, initiate the call to financial institutions who are likely to help you way before the expiration of your forbearance period.
What to do if you can’t afford your mortgage after the forbearance
If your forbearance period ends and you are still unable to make your monthly mortgage, the best option to start considering is the disposal of the property. This option however should be a last resort, as it could potentially harm your credit score.
In conclusion, note that you have options if your mortgage forbearance program is coming to an end, all you have to do is contact your loan servicer to know the options available to you and ensure they are on board with your strategy.
Also, keep in mind that your mortgage servicer cannot demand immediate repayment of all missed payments if your original forbearance was granted under the CARES Act.