Chances are your home if owned, is most likely one of your largest assets. And if you have a mortgage, it is also likely your largest single monthly expense. To help ease the burden on many Americans during the coronavirus pandemic the government has targeted mortgages as an area to concentrate relief efforts.
The CARES Act (Coronavirus Aid, Relief, and Economic Security) offers relief to people with loans backed by the government who are facing hardships as a result of the pandemic. The act offers relief in the right to forbearance and a moratorium on foreclosures for 60 days after March 18,2020. Chances are your mortgage could be affected by the CARES Act. Read on.
Is it recommended to request Forbearance?
If any of your income has not been affected by the pandemic and you are current on your mortgage, it is generally understood that you should keep paying back the loan. One detail often misunderstood about forbearance – you would have to catch the mortgage up in one lump sum once the forbearance period is over. Although, if you tend to be a saver, you could use this opportunity to build up your savings or pay off smaller debts that carry higher interest rates.
Mortgage forbearance can help you deal with a temporary financial setback. You could skip or make reduced payments for a predefined period of time, but interest still accrues.
What to expect at the end of the Forbearance Period
Once you have been approved and the forbearance is in place, the loan servicers are required to evaluate options to help the borrower get current after the forbearance period is done. Options for this include a one-time payment to catch up the mortgage, spreading the amount of the deferred payments over the life of the loan and adding the deferred payments in the form of a non-interest-bearing loan on to the back of the existing mortgage term
What if my mortgage is not backed by the government?
Although it may go without saying, to find out your lender options, start online or call them. With the sheer amount of people struggling, your lender may offer a simple process to request a forbearance. Always read the fine print from the online offer and if it does not meet the standards you expect, you may be better off making a phone call to dig into the details.
Based on media reports the private lenders are offering forbearance in some cases, but terms are often capped at 180 days or less. 90 days is the most common forbearance term. As reported the loan servicers are requesting the full amount of the skipped mortgage payments be paid back all at once or within 60-90 days of the end of the forbearance period.
You will also need to investigate whether there will be any negative credit reporting for taking on this forbearance. It may be reported but mortgage forbearance is less damaging to your credit score than a missed payment and helps you avoid foreclosure.
As time goes on with the new law and its mortgage changes, it will be hard to get consistent information from mortgage providers. If you are in a government-backed loan but your mortgage servicer is unsure of of your forbearance rights, it makes sense to ask to speak to someone else or call back later. If your loan is not government owned, but you feel like you are not getting the best deal, it may be worth it to try again as well.
If your financial hardship lasts longer than you had anticipated, or you don’t have the funds for a reinstatement or repayment plan, ask your lender about a mortgage loan modification. A loan modification changes the terms of your mortgage to help make your payments more manageable.
We can all agree that your mortgage is too significant to your financial health to get it wrong.