Understanding Your Homeowner Mortgage Forbearance Options
If you’re struggling to make your mortgage payment because of the economic situation you find yourself in as a result of the coronavirus pandemic, you’re not alone or without options. But you might not be getting all the details from your loan servicer.
Many are reporting receiving different information from loan service companies. The truth is, 70% of homeowners with loans backed by a federal institution can postpone their mortgage payments if experiencing a financial crisis because of the pandemic.
What You Need to Know
The federal relief legislation package known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act gives forbearance options to those with funding secured by the federal government. Many private lenders are also emulating these relief options.
First, it is important to understand that forbearance does not mean forgiveness, but you could be in a position to make your situation work for you without losing your home. Loan forbearance allows you to defer your mortgage payments in a tight spot without risking foreclosure. You can spread your repayments out on top of your mortgage when you are able to make payments again, or you can tack your missed payments onto the end of your loan, among alternatives.
Second, your options are specific to your loan servicer. The options outlined here represent those given to mortgage borrowers of loans with funding provided by federal institutions like Fannie Mae and Freddie Mac and may not be applicable to your situation. It is always recommended to contact your loan provider directly about your situation. Here are links to some of 2020’s largest mortgage providers’ COVID-19 options:
Third, you may not get information on all your options from your loan servicer right away. Many are getting all the details up front and are instead moved through a scripted process in which more options are revealed after a time. This has created confusion and concern where it is not needed.
That’s why we’ve laid out all your mortgage forbearance options for federally backed loans here, to give you a tool to approach financial security during this difficult time.
Your Options
If you are one of the millions of Americans with a home loan backed by the federal government, the CARES Act provides relief in the form of mortgage forbearance options that your loan servicer will have to respect.
This is what CARES allows you to do:
Lump-sum Repayment – This option requires you to pay back all your missed payments in a single payment at the end of the forbearance period, and it may not be at all feasible for many borrowers who have lost their jobs due to COVID-19. You do NOT have to settle for this option.
Loan Extension – This is a simple matter of moving the payments for the forbearance period onto the back-end of the home loan, so you’ll pay later and have a break now. A loan deferral like this could be a great way to buy you the time and breathing room you need now.
Payment Stacking – If you know you’ll have the income to pay your normal mortgage payment plus the deferred amount staggered throughout a period of time (usually from six-months to a year) this could be a desirable option. Payment stacking means you break your missed payments into chunks added on top of what you’d usually pay, when you are able to resume payments.
Extend Forbearance – You can request a forbearance extension up to four times, once every three-months. This means you can delay repayment for up to a year, if you need to. All you need to do is call your mortgage servicer to make the extension request.
Loan Modification – If you won’t be able to keep up with the original terms of your home loan even after a forbearance period, you’ll want to negotiate a loan modification. Work with the loan servicer to adjust the length and interest rate of your mortgage for a more financially feasible solution.
All of these options do not come with additional fees and in most cases prevent against the accrual of interest past the original terms of the loan.
Similarly, if you properly follow the mortgage forbearance process with your provider and servicer, the CARES Act stipulates that you will be protected from negative impacts to your credit that might otherwise result from missed payments. This means you don’t have to worry about running your credit score into the ground while you attempt to find stable financial footing during this crisis.
Finding Help
The last couple months have been a difficult time for all of us, but help is out there. Contact your mortgage lender and servicer if you find yourself in a difficult position because of the pandemic.
Do not hesitate to ask for help where you can to make your housing situation work for you, whether you are a homeowner renting out a home or living in it yourself. You have options that will help you make the most of your current situation, from deferring your mortgage payments to potentially modifying the terms of your loan.
Stay safe, and contact 208.properties today for more information on property management and real estate investment.