Whether you lost your job, are worried you might lose your job, or are finding finances crunched by the Coronavirus pandemic, you may be thinking about asking for a forbearance on your mortgage. BUT SHOULD YOU? Will it help put you in a better financial position?
WHAT IS FORBEARANCE?
Forbearance is a temporary postponement of mortgage payments. It is a form of repayment relief granted by the lender or creditor instead of forcing a property into foreclosure.
The keywords here are “temporary” and “postponement”. Forbearance is a way to delay your mortgage payments for some time with the knowledge and permission of your lender. That way you can skip several payments without putting your home at risk like you would if you just quickly made your payment. Eventually, your home would go into foreclosure.
The CARES Act has stipulated that “mortgage borrowers and federally backed loans can seek forbearance for up to six months.
You can also ask for an additional extension for up to six months if needed. You must contact your loan servicer to request this forbearance. You do not need to submit additional documentation to qualify other than your claim to have pandemic-related financial hardship.
THOSE SKIPPED PAYMENTS ARE NOT FREE
Some homeowners have been disappointed to find out that forbearance doesn’t mean forgiveness. You are not excused from making those payments; you are just not making them NOW.
One of the most important things to remember and the source of a lot of confusion is that forbearance is not forgiveness. It is just putting a pause on your mortgage payments for a few months. Depending on the loan servicer, interest can continue to accrue during the forbearance period.
There has been some talk about mortgage payments being tacked on to the end of the loan term, which would be more of a mortgage holiday for those who are having a hard time paying, but by and large, this is not what lenders are offering.
Borrowers are expected to bring their loan current at the end of the six months by “paying all past due amounts" (including those not paid during the Forbearance Period) and setting up a repayment plan that adds a portion of their past due amounts to your regular monthly payment until your account is current or applying for more permanent loss mitigation solutions.
Lenders are not to report forborne payments to the credit bureaus which means that borrowers who request forbearance will not see their credit scores suffer. However, if they do not contact their loan servicer to start a forbearance plan and miss a payment the lender is to report that lapse to the credit bureaus.
In addition, homeowners are still going to be paying interest on the balance of their loan, there are taxes and insurance that will have to be paid.
