Forbearance is not Forgiveness
One of the questions I’ve been getting asked about most these days is Mortgage Forbearance. Most start the conversation with, “I was watching the news, or I heard from someone, that I may not have to make my mortgage payment during the Covid-19 pandemic.” I can’t stress enough that a mortgage forbearance is not, let me be clear, NOT mortgage forgiveness.
ON March 27, 2020, a new law was passed called the CARES Act (Coronavirus Aid Relief and Economic Security Act) meant to address the economic fallout of the Coronavirus pandemic. It includes two key items for homeowners, suspending foreclosures and mortgage forbearance.
Forbearance allows a borrower to reduce or delay their mortgage payments for a specific period of time due to a hardship. According to the CARES Act, you can request a forbearance for up to 180 days. At the end of the 180 days, you can request another extension of up to 180 days more. Once the forbearance is over, you will be required to make ALL payments in full. If you can’t pay the full amount, then the servicing lender MAY allow you to pay the difference over a period of time, say the next 12 months. For example, let’s say your payment is $2000 per month. If you delay your payment for six months starting on May 1st, then on November 1st, you would be required to pay $14,000 ($12,000 deferred plus your current $2000 payment) to make the loan current. If you cannot pay this amount, then your servicing lender may allow you to split the $12,000 forbearance balance owed over the next 12 months. Starting on November 1st,, you would be making a payment of $3000 for an entire year. Just imagine if you delayed the payment for longer than six months!
Also please note, that your property taxes and homeowner’s insurance will not be part of the forbearance and must be paid by you or out of your impound account if one is set up. Any shortages in your account, will also adjust your payment when the forbearance period is over.
If you are able to continue making your mortgage payments, then please do so. If you have been impacted by Covid-19 and are someone that needs help, then please contact your current mortgage servicer. They will have guidelines on what your options are. Hold times are long, so you may find some information off their website, but it is important to speak with your servicing lender to get all the details on your options. Please be sure to ask the following questions:
- Are there penalties, fees or added interest to delaying my mortgage payment?
- If I do this for set number of months, will I have to pay the deferred amount at once?
- If I can’t pay the balance in full, what options do I have to pay the balance?
- Is a loan modification an option?
Lastly, if you are not able to keep current on your mortgage, know that this can impact your credit and financing at a later date. We have heard that a forbearance may not be reported during the pandemic, but know these rules and guidelines are constantly changing and not showing payments made on your credit report can have a negative impact.
This program was put in place to help those that are experiencing a financial hardship during the Coronavirus pandemic. It is not for those looking to skip a few mortgage payments because of something they may have heard. If you skip a few payments and don’t have a forbearance agreement approved with your servicing lender, then you can be foreclosed on when the foreclosure hold is lifted.
Depending on your situation, we may be able to help by eliminating your debts, lowering your payments, and giving you a cash cushion during these turbulent times.
Please feel free to reach out to me if have questions. Stay safe and healthy!
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.