Should you ask for forbearance on your mortgage payment?
If you are having a hard time paying your mortgage because of coronavirus-related financial hardship, you may be eligible to have your mortgage payment put into forbearance under the CARES act. Being laid off or reduced hours count as reasons for financial hardship. You should understand forbearance and consider options before you request it.
Forbearance is not Forgiveness
Mortgage forbearance allows you to pause or reduce your payments to the company that services your mortgage. You must make up the payments you miss later. This is not forgiveness. Repayment is just delayed.
How does Mortgage Forbearance Work?
Do not just stop making your mortgage payments! In order to delay making your mortgage payment, you must contact your mortgage servicer to request forbearance. After the forbearance period you will have to make up the delayed payments, in addition to your regular payments. Part of your discussion with your servicer when requesting forbearance may be how the missed payments will be made up. Some options include making additional payments each month on top of your regular mortgage for several months, a single large payment, or adding monthly payments onto the end of your mortgage.
Fortunately, late fees, penalties, or additional interest won’t be charged during forbearance under the CARES Act. Also, services may not report your late/missed payments to the credit rating agencies.
Who is Eligible for Mortgage Forbearance?
You can request forbearance under the CARES Act if your mortgage is owned or backed by one of the federal agencies. This forbearance is for up to 180 days. You can request an extension for 180 more days after the first 180-day period. Ask your mortgage servicer if you do not know who owns or backs your mortgage – their contact information will be on your monthly mortgage statement.
Considerations
Delaying your mortgage payment with no additional interest and fees or damage to your credit may sound great. But do not forget that you will have to make up the missed payments at some point. Also, you cannot refinance a mortgage in forbearance until you’ve made up the missed payments, so you may not be able to take advantage of today’s low refinance rates. Finally, think about whether you really need relief – can you draw from savings to help pay your mortgage for a few months so you can avoid making bigger payments or a lump-sum payment later?
Conclusion
The CARES Act gives holders of federally owned or backed mortgages the right to request forbearance on their monthly payments if they have been financially hurt by the coronavirus pandemic. Forbearance does not eliminate any of the mortgage debt but delays payment. It can be a useful option if you are experiencing true financial hardship.
NMLS #: 1476135
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