Mortgage forbearance provided a lifeline for many homeowners during the COVID-19 pandemic. In February 2021, according to an article on Forbes.com, 2.7 million homeowners were enrolled in forbearance plans.
A forbearance plan is an agreement that allows homeowners experiencing a temporary hardship to make a reduced mortgage payment (or no payment at all) during the plan’s term. Someone who received forbearance, will eventually have to repay any amounts not paid during the plan.
This past year we’ve seen many extensions on mortgage forbearance plans to help homeowners in distress. In March, the FHA gave qualifying borrowers three more months of forbearance which meant homeowners had until June 30th to exit.
According to Mortgage Bankers Association (MBA), data through March 28, 201 shows that 48.9% of homeowners who have left forbearance were current on their mortgage payments.
Now, with forbearance periods coming to an end, some homeowners are confused about how they’ll be required to pay back the amounts not paid. However, with after-forbearance options in place, homeowners have options to help get them back on track.
Your mortgage servicer (the company to which you make your mortgage payments to) should contact you about 30 days before your forbearance ends to discuss options. Be honest. Let them know what your current situation looks like so they can help you come up with the best financial game plan. If you haven’t heard from your servicer, take the initiative to reach out as soon as possible. Be patient as you may expect some delays.
Repayment Options
- Reinstatement: This option allows you to pay off the forbearance amount all at once if you’re able to.
- Repayment: Pay off forbearance amount over time by adding some of the amount you owe to your normal monthly payments.
- Covid-19 Payment Deferral: Add the missed amount to the end of your mortgage term. If you sell or refinance your home before that, then they payment is due at closing.
- Modification: If your hardship is permanent, you may be eligible to change your loan terms to make payments affordable. You may need to show that you can make the new payment for a trial period.
- Extend Forbearance: Under the CARES Act, if hardship continues discuss extending the forbearance with your mortgage servicer.
The right repayment option will depend of your current financial situation, job status, and ability to resume your monthly mortgage payments. When you contact your mortgage servicer, you’ll be able to discuss each option and find the one that best fits your current situation.
Let’s take a look at a few other options.
Refinancing After Forbearance
Typically, you will not be able to refinance after forbearance right away. For most loan types, you’ll need to have made at least three consecutive payments after exiting forbearance in order to be eligible. If you can lock in a lower interest rate and monthly payment, you may be able to make your mortgage payments more affordable.
Selling Your Home
The housing market is hot right now and if you’re willing to make a move this may be a good option.
Depending on how much equity you’ve built up, you may be able to sell your current house and use that equity to pay off the existing mortgage or you could use that money for a down payment on a less expensive house.
According to a recent CoreLogic Home Equity Report, the average equity of mortgaged homes is currently $204,000 and on top of that 38% of homes do not have a mortgage, so the level of equity available to today’s homeowners is significant.
What are the benefits of selling your home while in forbearance?
- You can take advantage of rising home values
- You can pay off your current loan early, along with extra payments you owe for forbearance and make a profit!
- Ability to upgrade or downsize to a new home
- Maintain a good credit standing
- Pay off any other debt or create a cash cushion if possible
Buying a New Home
Having been in mortgage forbearance should not keep you from buying a new home down the road. However, the rules for buying a new home are similar to refinancing and you’ll still have to meet the basic mortgage requirements.
Bottom Line:
Mortgage forbearance may be coming to an end for some, but there are options. Whether you’re ready to start making payments or need an extension you’ll have to speak with your mortgage servicer to come up with a plan you’re most comfortable with.
