There's no denying that the impact of COVID-19 has been financially devastating for millions of people. Job layoffs, furloughs, and business closures are climbing by the day. Many are facing the fact that they may not be able to pay their bills. As a result, millions of people with mortgages are seeking mortgage help. One option that many are considering is mortgage forbearance.
At the time of this writing, over 4% of U.S mortgages are in forbearance. This, compared to just 0.25% before the beginning of the Coronavirus pandemic. And this number is expected to rise.
The recently announced CARES act (Coronavirus Aid, Relief, and Economic Security act) is attempting to help affected homeowners with federally backed mortgages. The act allows them to put their loans into forbearance with a break on interest accumulation for up to 12 months.
In addition, many commercial lenders are also offering different variations of mortgage deferment programs to help ease the financial strain.
However, if you are thinking about mortgage forbearance or are already in a forbearance program, keep reading. There are some key pieces of information to be aware of as you navigate getting through this season of financial difficulty.
But first, let go over exactly what it is and how it works.
What is mortgage forbearance?
Mortgage forbearance is a way in which a borrower can get temporarily payment relief from their lender if they are facing temporary financial hardship.
It is essentially, an agreement between a mortgage lender and a delinquent borrower. In this agreement, the borrower's payments are suspended or reduced for a period of time to allow them to get current with their payments. During this time, the lender agrees not to foreclose on the mortgage.
The terms of a forbearance agreement vary amongst lenders. It is also dependent on your financial situation. You may have to pay additional costs on top of your payments to get current with your mortgage. Keep in mind your mortgage payment includes your principal, interest, taxes, and insurance.
What you need to know about mortgage forbearance
You still owe your full balance
One key thing to know with forbearance is that you still owe the full balance on your mortgage. It does not reduce debt, neither is it debt forgiveness.
This also means that at some point, your lender is going to expect payments, and also expect you to get current with your payments.
Some lenders may require a lump sum payment
With other debt deferment programs, you may have the option to go back to monthly payments after the deferment period is over. For example, deferring a car note. However, with mortgage deferment, some lenders require a lump sum payment once the forbearance period is over.
For people facing financial difficulty, a lump sum is most likely out of the question. Especially in times of uncertainty like this one.
Going about mortgage forbearance the right way
Communicate with your lender as soon as possible
If you are struggling to make your mortgage payments, communicate with your lender as soon as possible. Don't assume that they will automatically put you into a forbearance program. You need to have a forbearance agreement in place.
Ask your lender about payment options
Next, ask them specifically about payment options. If a lump sum is required at the end of the forbearance period, ask for alternatives. One alternative may be a loan modification. This is where the original terms of your mortgage are modified into a new agreement.
Determine the associated costs
Also, find out what interest or late fees are accruing during the forbearance period. Keep in mind that, if you have a federally backed mortgage that falls under the CARES act, you cannot be charged fees or interest for the 12 month period the act covers.
Get the support you need
When it comes to mortgage forbearance, it's important to know all the facts before you make a decision. This way you know what you are getting into. You'll also be able to create a plan to come up to speed with your payments when your financial circumstances improve.
If you are considering mortgage forbearance, you can also get unbiased help from counseling agencies approved by the U.S Department of Housing and Urban Development (HUD). They can go over default and foreclosure scenarios to assist you in making your decision. They will also provide you with details of your rights. The HUD website will also help you find an agency in your state.