Homeowners can suspend their mortgage payments during the pandemic. But what’s next?
Millions of Americans lost their jobs or suffered incomes during the pandemic. If this has happened to you, you may have chosen to forbear your mortgage.
Usually you seek leniency, which your mortgage lender may or may not approve. Thanks to the CARES Act, which was signed in late March to provide financial relief during the coronavirus crisis, homeowners with mortgages supported by the federal government or a government sponsored company can avail of this option. No payments are due during a forbearance.
Forbearance, mortgage payments are not made; They are only stopped to prevent homeowners from falling behind. Under the CARES Act, borrowers are granted an initial grace period of 180 days, followed by a second 180-day extension for a total of 360 days without having to make a mortgage payment. Right now, many of those initial grace periods are due for homeowners seeking relief early on in the pandemic. But what’s next?
When the mortgage forbearance ends
If your financial situation has improved since asking for your indulgence and you can keep up with your upcoming mortgage payments, you may not need an extension. Before you forego this extension, however, you should keep in mind that after exiting Indulgence you will be in catch-up mode and will have to make up for the skipped payments.
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Now how you make these payments depends on the agreement you have with your lender. However, you generally have between three and twelve months to catch up. Another option is to extend the mortgage repayment deadline and make those back-up payments once you have completed your regular payments. For example, if you have 16 years left on your mortgage, make payments for 16 and 1/2 years to cover the six months of payments you missed.
However, if you are still unable to pay your mortgage after this first grace period under the CARES Act, all you need to do is apply to your lender for a six month extension. However, remember that once this period has expired, you will have to start paying upcoming mortgage payments in good time and at the same time make up for any missed payments.
If you are unable to do so, you can apply for a loan modification, where your lender will work with you to modify the terms of your mortgage so that payments can be made more easily. For example, your lender can extend the repayment period on loans from 15 years to 20 years, or lower the interest rate to make it easier to manage your mortgage.
If that doesn’t work, and once the forbearance ends, you can’t pay your mortgage, then you may have no choice but to sell your home. If your home is worth more than your mortgage balance, just list your property and use your sales proceeds to repay your lender. If your home is worth less than your mortgage balance (which is often referred to as underwater on your mortgage), you can see if your lender is ready to short sell. If so, your lender will accept your sales proceeds as repayment of your mortgage and will give away the remaining balance. However, a short sale can affect your creditworthiness. Avoid this option if possible.
Communicate with your lender
While mortgage forbearance has been a lifeline for homeowners during the pandemic, it must end eventually. If your home loan is lenient, keep in touch with your lender so you know what to expect afterwards, and so that your lender knows if you are still in dire straits. The more communicative you are, the easier it will be to deal with that post-indulgence time when it arrives.
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