3 Moves You Need to Make if Your Mortgage Is About to Come Out of Forbearance

Have a home loan whose payments are paused? Here's what you need to know.

Many homeowners encountered their share of financial difficulties during the coronavirus pandemic. Thankfully, there was an option available to those who had a hard time making their mortgage payments -- forbearance.

Under the CARES Act, the massive coronavirus relief bill that was signed into law early on in the pandemic, any homeowner experiencing a financial hardship could enter forbearance. Under forbearance, home loan payments were allowed to be paused for up to 18 months.

Because many homeowners put their mortgages into forbearance in the spring of 2020, in the coming months, a lot of those loans will have to exit forbearance. If your mortgage falls into that category, here are three essential moves to make.

1. Figure out if you can start making your monthly payments

Your personal finances may have improved in the course of the past 15 months. Or maybe they haven't. Either way, take a look at your budget and see if you can swing your mortgage payments once your forbearance period comes to an end. You're better off knowing that information now than waiting for your payments to come due and then realizing you can't make them.

2. Ask your loan servicer for a mortgage modification

Are you worried you won't be able to keep up with your mortgage once your loan exits forbearance? If so, now may be a good time to talk to your loan servicer about a mortgage loan modification, which involves changing the terms of your home loan.

Your loan servicer may agree to extend your repayment term so that you get more time to pay off your home, thereby making each monthly payment lower and easier to manage. Or, there may be another arrangement your loan servicer can work out, so it's worth having that conversation.

3. See if it pays to move

Home values have risen substantially on a national level, to the point where your home might be worth a lot more now than it was when you started forbearance. You may have an opportunity to sell your home for a profit or break even and walk away with a clean slate. At that point, you could rent a home for a while or buy a home that's less expensive.

Remember, your credit score won't take a hit when you sell a home. It will, however, go down if you do a short sale (where your mortgage lender accepts a sale price for your home that doesn't cover your entire mortgage balance) or get foreclosed on. So before you decide to walk away from your home, see what its market value looks like and compare it to what you owe on your mortgage.

A lot of borrowers will run out of time on the forbearance clock this fall. If you're one of them, now's the time to get ahead of that situation and make sure you're equipped to handle it. And if you don't think you'll be able to start paying your mortgage again, be sure to explore your options sooner rather than later.