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Many Americans have struggled financially during the coronavirus pandemic, and thankfully, there's been a lifeline for homeowners in the form of mortgage forbearance. With forbearance, you hit pause on your mortgage payments without your lender declaring you delinquent. The delinquency piece is important, because being late with mortgage payments could seriously damage your credit score, not to mention eventually put your home at risk of foreclosure.
Forbearance isn't normally an automatic thing. Rather, it's something you apply for, and your mortgage lender may or may not grant it. But during the pandemic, all mortgage borrowers have the option to hit pause on their home loans for an initial 180 days, followed by a 180-day extension.
Earlier in the pandemic, many borrowers jumped at this option. But these days, fewer mortgages are in forbearance. Last week the U.S. forbearance rate, which measures the percentage of mortgages with paused payments, fell to 5.47% from 5.67% the prior week, according to the Mortgage Bankers Association. That rate has fallen for 11 consecutive weeks.
Good news for the economy?
Having fewer home loans in forbearance could be a signal that the U.S. economy is starting to improve. At this stage, a lot of homeowners granted forbearance earlier in the year have exhausted the initial 180-day period. The lower forbearance rate indicates that many aren't taking advantage of the option to extend paused payments for an additional 180 days, which in turn may mean more homeowners are now able to cover their payments.
Of course, it's generally in homeowners' best interests to keep forbearance to a minimum, because any missed payments do eventually have to be paid. But given that we're not even 360 days into the coronavirus crisis, a dropping forbearance rate is a positive sign.
Should you put your mortgage into forbearance?
While the national forbearance rate has dropped, that doesn't necessarily mean your personal financial situation has improved since the start of the pandemic. If things have gotten worse for you, you may be thinking of hitting pause on your own mortgage.
While suspending your mortgage payments means having to catch up on them later, you can make that less stressful by submitting partial payments to your lender during your forbearance period. A common misconception is that mortgage payments are not allowed during forbearance. That's not true. Your lender can't demand payment while your loan is in forbearance, but you're still allowed to pay so that if, for example, your normal monthly payment is $1,000 but you can swing $400, you'll only owe $600 for each month your loan sat in forbearance.
Furthermore, while forbearance can normally hurt your credit score (though not nearly as much as delinquent payments and foreclosure), during the pandemic, you're protected from that. Therefore, while you may not want to buck the trend of a dipping forbearance rate, if you need the help, don't hesitate to ask for it. With luck, your finances will pick up in the near term and you can catch up on your missed payments without the stress of having to make them in a timely manner while you're struggling.