Mortgage Forbearance: How do you prepare for when your forbearance period ends? What you need to know about forbearance.
Forbearance: Many homeowners are unaware of the forbearance option. Under the cares act, millions of homeowners have received forbearance due to the coronavirus pandemic.
How do you prepare for when your forbearance period ends?
The first thing you need to know about forbearance is that it is not forgiveness, and you eventually have to pay back the mortgage payments that were paused or reduced.
It is crucial to keep in mind that before the forbearance period is over, your mortgage servicer should reach out to you and let you know what options are available to you going forward. But if they haven't contacted you in 30 days before your forbearance period ends, make sure you contact them yourself.
You need to know:
- When your forbearance period ends.
- What are your repayment options?
If the pandemic is still causing you financial hardship, you may be able to extend the forbearance under the cares act for 180 days, and you have the right to an additional 180-day extension. There's no harm in asking for help. Under the cares act, you do not need to provide any financial documentation to prove hardship to get a forbearance. It is essential to know that you have a maximum of the 18-month time frame for forbearance and the deadline for requesting forbearance for the first time is September 30th, 2021.
You need to know your repayment options, and don't forget; eventually, you will have to pay back the money you owed to the lender due to not paying your mortgage during forbearance.
There are several options for repaying forbearance debts, but which options are available to you? It may be up to who owns or backs your loan, your mortgage servicer, and your particular financial situation. There's no one-size-fits-all for all homeowners.
if you have a federally backed loan which is a mortgage from the following lender:
- Fannie Mae
- Freddie Mac
- FHA
- VA
- USDA
Remember that your mortgage servicer will not require you to pay back your forbearance as a lump sum. However, many loan services for non-federally backed mortgages also do not require lump sum repayments. Still, some may ask. Make sure you ask them about other options if your lender only talks to you about a lump sum repayment.
There are four ways to repay the money owed from your forbearance.
Here are the most common Forbearance options
- Reinstatement - Pay the total amount owned all in one lump sum. This option will get you back to your regular monthly mortgage payments.
- Repayment plan - You will make your preview regular mortgage payment plus some extra payments of the unpaid balance due to the forbearance over a certain period. For example, let's say that your forbearance paused your mortgage payments for six months, and your regular mortgage payment was two thousand dollars each month.
So let's add up the 6x2k= 12 thousand dollars, assuming that your servicer offers you one year to make up the 12 thousand dollars unpaid due to the forbearance. Let's do the math that comes to one thousand dollars extra each month for 12 months.
If you add one thousand dollars to your regular mortgage payment each month for one year, so your total mortgage payment would be three thousand dollars until you make up the skipped payments. After you've repaid the payments you missed, your monthly payments would return to your regular two thousand dollars.
- Payment deferral – Payment deferral will put the unpaid forbearance debts to be paid at the end of the term of your loan.
For homeowners who can resume making their regular mortgage payments but can't afford to pay any extra:
- They will wait to make up unpaid forbearance debts at the end of the term of your loan.
- Repay forbearance debt when you sell or refinance their homes.
You don't have to make up the payments for the amount paused or reduced during forbearance until the end of your loan for those of you who may receive a payment deferral.
- Loan modification – A loan Modification is when your mortgage servicer and you work to modify the terms of your mortgage to accommodate the missed forbearance payments and adjust the new payment amount to make it affordable. A loan modification might be suitable for homeowners if they can no longer afford their regular mortgage payments due to permanent changes in their financial situation, such as long-term job loss.
For example, the servicer will add the missed payments to your entire principal balance and recalculates your monthly payment to readjust your loan term to bring your monthly payments to an affordable level. Instead of having 20 years mortgage, which was the original term of your mortgage paid off.
Now, with the modification, the lender added two more years to pay off both balances. That is 22-years to pay off your new mortgage balance; as you can see, your monthly mortgage payments might be reduced, but it could take you longer to pay off your mortgage, and you may have to pay more interest rates over the life of your loan.
The other option is the typical lump-sum payment. So as soon as your forbearance period ends, you repay all of your missed payments in one payment
you will pay four thousand dollars one thousand dollars for your regular monthly payment and three thousand dollars to repay the payments you skipped; then, your monthly payment will go back to the normal amount.
Four thousand dollars one thousand dollars for your regular monthly payment and three thousand dollars to make up for you skipped after that; your monthly payment will go back to the normal amount.
Homeowners who have the money can make one lump sum payment. However, many homeowners may not be able to afford higher monthly mortgage payments.
If that's your situation, you should ask your servicer about other available options. Remember, if you have a federally backed loan, you are not required to pay your all forbearance debt in one lump sum payment. There are a lot of options, but remember not all of them may be available to you.
It's crucial to work with your servicer to understand their process.
Your next steps are to find out when your forbearance plan ends. And understand the best option available to you according to your situation.
For assistance talking to your mortgage servicer or understanding your choices, or if you are concerned about foreclosure contact, a HUD-approved housing counseling agency in your area for more in-depth information on mortgage relief options. Visit consumerfinance.gov housing.
For More Information about Forbearance and other resources you can contact me at:
Mayra Espinosa
650.996.8961
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