Mortgage Loan Forbearance
What Is Mortgage Loan Forbearance?
Over 60% of homeowners took advantage of mortgage loan forbearance in 2020. Mortgage forbearance has always been available, but many people weren’t truly aware of what it was until the pandemic hit.
Sometimes life starts to go sideways, and we may find ourselves looking for relief. Forgoing mortgage payments in 2020, for some, lifted a necessary burden off their shoulders.
Unfortunately, not all who took advantage of mortgage loan forbearance were fully aware of the details, or they were never able to get caught up with the deferment. If you find yourself in one of these positions, Living Houston is here to help. But first, let’s take a look at the three mortgage loan forbearance options.
Three Mortgage Loan Forbearance Options
When your bank or lender accepts your forbearance request, it comes with a catch. Forbearance doesn’t allow you a few months without payments that magically disappear; in fact, it’s the exact opposite. The lender doesn’t want all their money back when your time is up. They often expect it all back at once and sometimes with interest and fees tacked on.
Three Ways To Repay A Loan In Forbearance
Lump Sum Payment
1. When the deferment period ends, you’ll be required to repay all missed payments in one lump sum. For a lot of people, this option isn’t likely. For instance, if your mortgage is $3000.00 a month and you defer your loan for three months, at the end of the deferment period, you will now be required to pay a lump sum of $9000.00. If you don’t have $3000.00 a month in your budget for the mortgage, you often will not have $9000.00 at the end of the period.
2. The second option is to take the lump sum due at the end of the deferment period and disperse it and roll it into your monthly mortgage payments. For instance, if we go back to the scenario where you owe $9000.00 at the end of the deferment, your lender will take this lump sum and spread it out over a given time, usually no longer than six months. They will divide the $9000.00 by 6, giving them $1500.00 a month for six months. The $1500.00 will now be due in addition to your typical monthly payment of $3000.00. So your monthly payments will now be $4500.00 a month for the next six months. This option is also, at times, difficult for a homeowner to execute.
3. The third option is to take the deferred payments and tack them on to the end of your loan term. If you deferred payments for three months, your mortgage company will take those three payments and add them to the end of your loan term. Now a loan initially scheduled to be paid off in April of 2030 won’t be paid off until July of 2030. Fees and extra interest can often accompany this, so please be sure to ask detailed questions before choosing this option. Also, remember, this can affect your credit score. Under the CARES Act, anyone who took advantage of mortgage loan forbearance options is not supposed to be penalized or have their credit negatively affected. Still, again, it can never hurt to be extra sure before accepting the deferment.
Above all, make sure that you are staying in constant contact with your bank or lender. It is of the utmost importance that they know you’re on top of the situation, it is also important to know what forbearance options your mortgage company offers. They all have different terms and requirements, never assume you know what services they will provide.
Three Ways To Get Out Of Forbearance
There are three ways you can get out of forbearance right now.
1. The first option is to pay off the lump sum. This option protects your credit score and brings you back into good standing. If you have the resources and love your home, this is the best option to get you back on track.
2. The second option is to refinance your home. Refinancing may be a fantastic option for some people at this time. With some of the lowest interest rates in history, you might not just be able to get out of forbearance. You may be able to lower your monthly payment at the same time. However, make sure to check with your bank or mortgage lender. Some lenders require that your loan payments are current and up to date before refinancing.
3. A third option is to sell your home. Living Houston can help with this one if it feels right for you. If you decide to sell your home while in forbearance, it can often be a game-changer. If you have enough equity in your home, you can usually pay off the loan and have money left over to buy something more budget-friendly or rent for a time. Living Houston specializes in helping homeowners discover the best course of action during stressful times. We’re confident that we can assist you through what, for many, can be a complicated process.
Living Houston Can Help
If you would like to discuss your current forbearance situation, the team at Living Houston would love to chat with you. Contact us today.