by Maurie Backman | Sept. 14, 2020
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Some homeowners are making payments on their paused home loans after all.
The COVID-19 pandemic has wreaked massive financial havoc. Millions of workers have lost their jobs, while countless small businesses owners have scrambled for assistance to keep their doors open.
Thankfully, there's been a lot of aid available to those in need. And for many homeowners, the ability to put mortgages into forbearance has been a lifeline. Specifically, homeowners with a federally-backed mortgage can request forbearance for up to 180 days during the pandemic. And if that's not enough, they have the right to an extension for up to 180 more days, for 360 days in total.
With forbearance, you effectively hit pause on your loan payments. You still accrue interest on the loan balance, but you won't be reported to the major credit bureaus as delinquent on your home loan during your forbearance period.
As of mid-June, around 5 million U.S. homeowners had requested putting their mortgages into forbearance. But the number actually in forbearance is now just 4.1 million. And according to Caliber Home Loans, 43% of their customers who are in forbearance have managed to make three months of mortgage payments despite not being obligated to do so. That's a sign that some people's financial situations have remained stable or improved since the start of the pandemic.
If you put your mortgage into forbearance but your financial circumstances have remained stable or gotten better, you may wonder if it's wise to make some payments on your home loan, too. The quick answer? It depends.
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Though forbearance lets you skip mortgage payments for a while, those payments aren't just forgiven. You'll need to make them eventually, so if you're able to pay your mortgage while your loan is in forbearance, you'll owe less down the line.
On the other hand, if money is truly tight, and you really have little financial wiggle room, then you may be better off conserving your cash and taking advantage of not having to pay your mortgage for a while. Furthermore, if it's a choice between making mortgage payments but racking up unhealthy credit card debt, or skipping the mortgage and avoiding credit card debt, the latter is preferable. Remember, being in forbearance won't hurt your credit score, but a large credit card balance could.
Once your forbearance period ends, you repay the mortgage payments you missed. Your repayment plan, however, depends on your lender.
During the COVID-19 pandemic, many lenders are allowing borrowers in forbearance to repay missed payments over time, as opposed to a single payment all at once. Generally, the terms of your repayment are spelled out when you first apply for forbearance, so pay attention to what they entail.
Finally, if you find that your financial situation is still dire when your forbearance period ends, get in touch with your lender and talk through your options. If you're otherwise a borrower in good standing, you may qualify for additional longer-term help from your lender.
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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