Finishing a Forbearance
In the wake of the COVID-19 pandemic, many homeowners took advantage of mortgage forbearance programs to suspend their monthly payments. Recent legislation, such as the CARES Act and the American Rescue Plan Act, provides guidelines for starting and ending forbearance on federally-backed mortgages, as well as other aid programs to help homeowners avoid defaulting on their home loans.
If you are among the more than 2.5 million homeowners currently on a forbearance plan, it may be scheduled to end soon. Be sure you know the options for transitioning back, as well as the expectations for getting caught up on the payments you missed.
Plan for Repayment
Unfortunately, forbearance is not forgiveness. While a forbearance plan can provide relief when financial hardships hit, the missed payments will eventually become due. Exactly when and how a forbearance ends can vary widely, however. The best way to clarify your options is to speak directly with your lender and agree to a plan before your forbearance ends.
In some cases, the loan term is simply extended by the length of the forbearance. Another option is to gradually repay the lapsed amount over an extended period, on top of your regular mortgage payments. Less likely is a lump sum payment of the entire overdue amount. The CARES Act restricted this type of repayment for federally-backed loans, but the potential could still exist with other programs.
The Sooner the Better
Regardless of how you end up paying back the deferred payments, ending your forbearance as soon as your financial situation has stabilized is often the most responsible approach. You are not required to continue a forbearance for the maximum time allotted. Instead, you can request to end it at any time.
While the CARES act may prevent your lender from adding new interest charges to your loan agreement, the principal and existing interest must still be paid. Delaying this longer than necessary will only limit your financial flexibility in the future. While a forbearance should not negatively impact your credit, refinancing or applying for a new mortgage may not be an option until you have resumed making payments for several months.
However, if your financial struggles continue, don’t assume your current forbearance is the only relief available. An additional extension could be available thanks to COVID-related legislation and depending on the type of loan program.
The recently passed American Rescue Plan Act also includes $10 billion to help homeowners avoid foreclosure. If your forbearance will end soon and you cannot resume payments, don’t delay in speaking to your lender about further options.
Visit us for more ways to make the most of your homeownership experience, or call today to speak with an expert loan representative.