by Maurie Backman | Feb. 22, 2021
If your forbearance period is coming to an end, here's what you need to know.
Millions of Americans have been impacted financially by the coronavirus pandemic, and that includes homeowners. The good news is that there's been relief available to mortgage borrowers in the form of forbearance.
Normally, forbearance is something mortgage lenders can deny, but thanks to the CARES Act, any borrower who requests it is guaranteed to get approval. During forbearance, all mortgage payments were originally eligible to be paused for up to 360 days, and a three-month extension was recently added. Those payments aren't forgiven, but rather, postponed until a later date.
Once forbearance ends, borrowers must catch up on their payments, though their lenders can't require that they do so via a lump-sum payment. Rather, what's more likely to happen is that lenders will extend borrowers' loan terms to cover their missed payments. So, for example, if a homeowner with a loan in forbearance paused payments for a year and has six years left on his mortgage, he'll now have seven years left. In some cases, borrowers may be asked to make higher monthly payments following forbearance to catch up on payments that were missed.
Borrowers who are struggling to pay their mortgages can still request forbearance today. But those who were quick to ask for forbearance early on in the pandemic may soon see that relief come to an end. In fact, more than half of the 2.7 million active forbearance plans are set to expire between March and June of 2021, according to mortgage data firm Black Knight. Now that time frame may be pushed out a little in light of the aforementioned extension, but it still means that some borrowers may find themselves in a tight spot in the not-so-distant future.
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If you requested forbearance during the early stage of the pandemic, you may be nearing the end of your paused payments. If that's the case and your financial situation has not since improved, don't panic -- you still have options.
First, you can ask your lender to extend your forbearance period. Your lender won't be obligated to do so, but it's a possibility, nonetheless.
Lenders understand that a lot of people are still struggling during the pandemic and may also recognize that once the economy recovers, so too will the financial situations of a lot of people. Rather than deal with foreclosure, which is time-consuming and expensive, lenders may instead opt to extend forbearance voluntarily on an individual basis. But you'll need to ask for that help.
Otherwise, your lender might agree to modify the terms of your loan once your forbearance period ends so that it's more affordable for you to pay. Similarly, you may be eligible to refinance your mortgage to a more favorable interest rate that lowers your monthly payments substantially.
The takeaway? Don't assume you're destined to lose your home if your forbearance period wraps up and you still can't pay. Your lender may be willing to work with you. So reach out and have that conversation now before you've run down your forbearance clock. That way, you'll have time to hash out some options and work with your lender to figure out a solution.
Of course, this assumes you want to stay in your home. If you don't, you may have the option to sell it, pay off your mortgage, and walk away clean. But if that's not what you want, or it's not an option because you owe more on your mortgage than what your home is worth, don't hesitate to ask for added relief.
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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