by Maurie Backman | Jan. 21, 2021
Your mortgage payments may be paused right now, but that won't last forever.
Millions of Americans have encountered their share of financial hardships during the coronavirus pandemic. The good news is there's been relief available to homeowners in the form of mortgage forbearance. Forbearance allows borrowers to pause their monthly payments to their mortgage lenders without being reported as delinquent or charged fees for being late.
During the pandemic, homeowners were entitled to request up to 360 days of forbearance. Currently, there are an estimated 2.74 million homeowners whose mortgages fall into that category, according to Black Knight. But in the coming months, many of those borrowers will inevitably exit forbearance. That means they'll need to start catching up on their missed payments. If you're in that situation, here are a few things you need to know.
You'll eventually need to make good on the mortgage payments you skipped while your loan was in forbearance. But you won't have to do so via a single lump-sum payment. Rather, you'll be given time to catch up. The specifics, however, will depend on your lender, so reach out and get clarity if you're not sure what your repayment schedule looks like.
Unfortunately, your forbearance period may run out before you can get into a better place financially. If that's the case, talk to your lender. There may be several ways you can lower your mortgage payments. For example, you may be eligible to refinance to a lower mortgage rate, or you may get the option to modify your loan. With loan modification, you don't apply for a new mortgage like you do when you refinance -- you simply change the terms of your existing loan.
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If you're no better off financially when you exit forbearance, you may want to consider selling your home. It's not an easy decision, but you may be able to find a less expensive place to live until you're back on your feet. Home values have risen considerably in the past year due to a surge in buyer demand caused by low mortgage interest rates and limited housing inventory.
If you decide to sell your home, you may find you're able to command a high enough sale price to pay off your mortgage and walk away clean. However, if you can't sell your home for a high enough price to pay off your mortgage, you might need to look at other options. You could, for example, talk to your lender about a short sale. A short sale is where your lender accepts a price that doesn't cover your existing home loan and writes off the rest of your outstanding balance. A short sale isn't ideal because it goes on your credit report, and lenders may be reluctant to agree to it. But it's a better option than falling behind on your mortgage and risking foreclosure.
Though forbearance rates are down in early 2021 compared to previous levels, 5.2% of all mortgages are still in forbearance. If you're part of that statistic, make sure you're prepared for what happens once your home loan payments start coming due.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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