If your loan payments are paused right now, here's some essential information to gather -- before forbearance ends.
Mortgage forbearance has made it possible for many homeowners to better cope financially with the impact of the coronavirus pandemic. With forbearance, mortgage payments are paused and aren't reported as delinquent to the credit bureaus, which means borrowers' credit scores are protected. Normally, mortgage lenders can routinely approve or deny forbearance. But, as part of the CARES Act, all homeowners have been entitled to forbearance provided they certify that they're experiencing a financial hardship.
If your home loan is currently in forbearance, you may be appreciating that reprieve. But here are a few important things you'll want to learn before your forbearance period comes to an end.
1. Your last month of paused payments
Mortgage forbearance under the CARES Act was initially allowed to last up to 360 days. But it's since been extended by an additional six months for loans that entered forbearance on or before June 30, 2020. Make sure you know when your forbearance period comes to an end, and if you're not sure, ask your lender. Keep in mind that forbearance extensions could come into play again, depending on what happens with the economy in the coming months. But either way, it's important to have a sense of when you'll be liable for mortgage payments again.
2. How you're supposed to catch up on payments
Your mortgage payments aren't forgiven while your home loan is in forbearance, so you'll need to catch up on them once that protection ends. And how you do that will largely depend on your lender.
Now one thing your lender can't do is require you to catch up on all of your missed payments via a single lump sum. But your lender may want you to make a higher monthly payment once forbearance ends to get current on those skipped payments. Another, and more manageable, option may be to extend your loan's repayment period and tack those missed payments on at the end. Either way, talk to your lender so you know what's expected of you.
3. What options you have if you still can't pay
Ideally, your financial situation will improve by the time forbearance ends. But what if it doesn't?
In that case, it's important to know what options you'll have, and a conversation with your lender can give you that information. You may be eligible for loan modification, where the terms of your mortgage change in a way that makes it more manageable for you. Or, you may be eligible to refinance your mortgage to a lower interest rate, thereby reducing the amount of money you pay each month. You might also choose to sell your home and walk away -- a viable option if your home is worth enough to pay off your mortgage in full.
Putting your mortgage into forbearance may have given you some breathing room as you work to get your finances back in order. And while forbearance may get extended again, eventually, it's apt to come to an end. Your best bet is to be prepared for that scenario by gathering essential information in advance. That way, you won't be subject to any shocking or unpleasant surprises.
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