Home loans have been steadily exiting forbearance. Here's what you need to know if yours is about to exit.
Millions of people lost their jobs when the coronavirus pandemic hit, and many immediately worried they'd fall behind on their mortgages. Thankfully, the CARES Act passed fairly early in the pandemic, and one of its key provisions was that any homeowner attesting to financial hardship qualified for mortgage forbearance.
Home loans in forbearance are paused for a time, then caught up on later. Initially, forbearance under the CARES Act was set to last for up to 12 months, but was then extended to last up to 18 months. This means home loans that entered forbearance immediately following the passing of the CARES Act should still have a little time left on the clock.
In spite of that, forbearance rates have steadily declined. In fact, the number of mortgages in forbearance has dropped three months in a row, according to the Mortgage Bankers Association. And that could be a sign that the economy is slowly but surely getting back to its pre-pandemic state.
Still, not every borrower with a mortgage in forbearance is ready to exit. If your mortgage payments are still on pause, you may only have a few months until you're required to pay your loan servicer again. But if your circumstances haven't improved, that doesn't mean all is lost.
Struggling borrowers should ask for help
Though forbearance may officially end for many borrowers in the coming months, that doesn't mean a loan servicer won't work with you if you're having a hard time making ends meet. If you're worried you won't be able to keep up with your mortgage, ask your loan servicer if it's possible to modify the terms. Your loan servicer may agree to extend your repayment window so that your balance is stretched out over a longer period of time, thereby making monthly payments less expensive.
For example, say you have 22 years left on your mortgage. If you can't manage your payments when forbearance ends, your loan servicer might agree to let you pay off your loan in 32 years instead of 22, so you pay less each month.
Keep in mind as well that home values have soared during the pandemic. If you can't keep up with your mortgage when forbearance runs out, you may be able to sell your home and command enough money for it to pay off your mortgage. Granted, this still requires you to move, but it doesn't damage your credit and can make it possible to move to a home with a payment (mortgage or rent) you can afford.
A drop in mortgage forbearance numbers is a good thing, but don't be discouraged if you're not ready to exit forbearance just yet. And don't assume the worst if you still can't make your mortgage payments in full. It's in loan servicers' best interests to work with borrowers rather than go through the foreclosure process. Don't hesitate to ask for the help you need.
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