Mortgage Forbearance Rate Drops 3 Weeks in a Row

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There's been a modest uptick in home loans exiting forbearance in February.

Mortgage forbearance has been a lifeline for struggling homeowners during the pandemic. Forbearance allows borrowers to pause their mortgage payments without getting flagged as delinquent on their loans, thereby preserving their credit scores and avoiding dire consequences like foreclosure.

Originally, mortgage forbearance was slated to last 360 days as part of the CARES Act, the relief bill signed into law in late March 2020. Forbearance then got a three-month extension, so borrowers could pause their loans for 15 months. The Biden administration recently extended it again, this time allowing loans put into forbearance by June 30, 2020 to remain paused for up to 18 months.

Despite that extension, the percentage of mortgages in forbearance has declined steadily in February. The Mortgage Bankers Association reports that the total number of loans in forbearance fell to 5.22% for the week ending Feb. 14, 2021. One week prior, that percentage sat at 5.29%. The percentage translates to about 2.6 million mortgage holders now in forbearance.

The percentage of loans in forbearance has decreased for three weeks in a row. But with forbearance extended, that trend may be short-lived. Loans in forbearance can now stay that way for longer, and the deadline to apply for forbearance was pushed to June 30, 2021, which means more borrowers may seek out this protection in the coming months.

Should you put your home loan into forbearance?

Forbearance is a good option if you're having a hard time keeping up with your mortgage payments, because it can prevent you from falling behind and damaging your credit. It doesn't make your mortgage payments go away -- it simply allows you to pause them while you get back on your feet, and catch up when forbearance ends.

Even if you're making your mortgage payments, if you're having a difficult time paying other bills, forbearance can allow you to free up the cash you'd normally put toward your mortgage and use it for expenses that can't wait, like food, medication, and other essentials.

Of course, the idea of catching up on missed mortgage payments may seem daunting. It's important to know that your lender cannot compel you to make good on those payments in a lump sum. Rather, you're given a reasonable amount of time to catch up on the payments you skipped. Often, a lender extends your loan, tacking the missed payments on to the end of your repayment period. In other words, if you miss 12 payments, you pay off your home loan for an extra year beyond your loan's original end date.

Another option for catching up on missed payments is to make higher monthly payments once forbearance ends. However, if your financial circumstances don't allow for this, don't stress -- just talk to your lender about a payment plan that works for you.

Furthermore, if you can swing partial mortgage payments while your loan is in forbearance, you're allowed to do so. That way, you have less to catch up on afterward.

Though mortgage forbearance rates have dropped steadily in February, that trend isn't guaranteed to continue. Now that homeowners can extend forbearance and take more time to apply, we could actually see the percentage of mortgages in forbearance increase in March. That shouldn't necessarily be cause for concern or be seen as an indication that the economy is taking a step back from recovery. Rather, it could just mean borrowers are choosing to take advantage of the protections available to them.

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