4 Strategic Moves to Make While Your Mortgage Is in Forbearance
by Maurie Backman | Updated July 19, 2021 - First published on March 22, 2021
Have a home loan that's paused? Here are a few smart things to do.
Though renters have experienced their share of financial struggles during the pandemic, many mortgage borrowers have had a hard time as well. Thankfully, there's been relief for both groups. In the case of renters, it was eviction bans (and the $1.9 trillion relief bill included billions for rental assistance). For homeowners, it was mortgage forbearance.
Forbearance allows mortgage borrowers to pause their loan payments for a period of time. Those payments aren't forgiven, but homeowners aren't reported as delinquent for not making them. The CARES Act (the sweeping coronavirus relief bill that was passed in March of 2020) made it possible for all homeowners experiencing hardships to qualify for forbearance, and if you took advantage of that option, your monthly payments may be paused right now. If that's the case, here are a few important moves to make in the near term.
1. Sock away extra funds in savings
If you had to put your mortgage into forbearance, it means you were struggling financially to some degree, and if that's still the case, you may not have money left over each month for savings. But if you do have some extra cash at the end of the month -- say, you're able to work and you don't spend your entire paycheck on your non-mortgage expenses -- it's a good idea to put it into your savings account. Once forbearance is up, you may have a hard time adjusting to having to pay your mortgage again, so having a cushion will make that transition easier on you.
2. See what your home could potentially sell for
You may, unfortunately, find that your financial situation hasn't improved by the time forbearance comes to an end. If that's the case, your best bet may be to sell your home, pay off your mortgage lender, and walk away. But you'll want to make sure that's an option, and you can do so by researching your home's value to make sure it has the potential to sell for a high enough price to pay off your home loan balance in full.
How do you find that out? One easy way is to look at comparable homes in your neighborhood that recently sold. If five houses just like yours just had buyers who paid between $300,000 and $320,000, you can reasonably expect your home to command a similar sale price, assuming it's in similar condition to the ones that sold. You can also ask a real estate agent to come check out your property and give you an estimate as to what it might sell for in today's market.
3. Update your lender on your circumstances
If your financial picture is still looking bleak as forbearance winds down, don't just keep that information to yourself. Rather, reach out to your lender and say that you may not be able to keep up with your mortgage payments once forbearance ends. At that point, your lender may be willing to talk through some options, whether it's loan modification or mortgage refinancing, that make your payments more affordable. Your lender may even be willing to extend forbearance, even if it's not required to.
4. Pay some of your mortgage if you can
The whole point of forbearance is to get relief from your monthly mortgage payments. But that doesn't mean you can't make those payments if you're able to. The more you pay into your mortgage during forbearance, the less you'll have to catch up on, so if you have a month here and there where you can swing a payment or partial payment, you might as well make one.
Of the many coronavirus resources available, forbearance has been a lifeline for many borrowers. If you've taken advantage of this resource, make these moves while your mortgage is in forbearance to set yourself up for an easier time once that protection comes to an end.
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