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.
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.
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.
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.
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.