Break On Your Home Loan? Some payments might still be to your advantage.
Millions of Americans have seen their finances deteriorate during the coronavirus pandemic. If you are one of them, you may have chosen to forbear your mortgage.
Under normal circumstances, you will need to ask your mortgage lender for indulgence and that application may be refused if circumstances warrant. But leniency cannot be denied to homeowners during the pandemic – and they are entitled to up to 360 days of it.
If your mortgage is lenient, know that during this time your payments will not be forgiven. Rather, they will stop and you will have to catch them up afterwards. The details of how you do this vary from lender to lender. Because of this, you may want to pay off part of your mortgage during the forbearance, even if you are under no obligation to do so.
The Benefit of Paying Your Mortgage While Forbearance
Now, if you are having trouble making your regular mortgage payments, imagine how difficult it could be to make those payments Plus Your catch-up payments. Unfortunately, that’s how leniency works. Once the grace period has expired, you will need to resume your regular payments and repay the repaid payments. And that could prove difficult if your financial situation doesn’t improve significantly by then.
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If you are able to make some mortgage payments, even partial payments, during the forbearance, then it makes sense. The only exception is when you really have no money in the bank at all. When this happens, you may want to hold onto cash to cover important expenses such as groceries or medicines. Otherwise, dealing with part of your mortgage could ease the burden of catching up later.
What if you can’t pay your mortgage after the forbearance ends?
If at the end of your leniency period you are still unable to make payments, there are several options you need to go through with your lender. Your lender may agree to modify your home loan to make your payments more affordable. Refinancing your mortgage could be an option, especially if your credit score is very high. A loan modification is also worth investigating. Refinancing can lower your monthly payments a little, but it may not be enough to make them affordable.
If your lender doesn’t modify your loan and refinancing isn’t an option or doesn’t lower your payments enough, you may need to consider selling your home. It might be difficult, but if your home is worth more than your remaining mortgage balance, you can sell it and use the proceeds to pay off your lender. That way, you can get your credit and rent a cheaper home for a year or two before you get back on your feet. If you are underwater with your mortgage – that is, you owe more than what your home is worth – you need to speak to your lender about short sale approval.
Forbearance is not a perfect solution
Forbearance was a lifeline for homeowners during the pandemic, but there is one downside: the burden of making back payments. Being able to partially pay off your mortgage during the indulgence could make your life much less stressful later on.
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