Things to think about before jumping into Mortgage Forbearance*

With so many job layoffs, furloughs and lack of clients for many businesses, money may be tight. You may be looking for ways to save your cash until the future looks more certain.

One of those bills may be your mortgage payment. The government has offered the option to postpone your payments. The Coronavirus Aid, Relief, and Economic Security Act (CARES) has a provision that would allow affected homeowners to apply for up to 12 months on federally-backed mortgages and states have also rolled out their own relief measures for borrowers whose mortgages aren’t backed by the federal government.

While it sounds appealing (and may be a necessity in the short term), it's important to know what you are getting into before making the decision. Most importantly, if you can pay your mortgage, pay your mortgage. Payments waived or delayed could come back to haunt you, and there could be other surprise repercussions.

What is Forbearance?
Mortgages aren’t being forgiven. Instead, the state and federal COVID-19 measures call for forbearance – the postponement or reduction of the loan payment due. Payments that are paused during forbearance will not be reported to credit bureaus as late.

Check your eligibility
Reach out to your loan servicer first – that is, the company that bills you each month to apply. it may not be the company that originally made the loan to you. Whether you’re eligible for relief under the federal CARES Act or your state’s plan will depend on who owns your loan.

What happens when the Forbearance is over

When you are ready to resume payments, the money from the forbearance needs to be paid back. It will be up to the mortgage holder and government regulations as to how the money will be paid back. Following are ways your mortgage holder could require the payback:
Lump Sum Payment: If you can afford it, the simplest thing to do is make a lump sum payment and pay off the whole amount you owe. That sounds like a big chunk. If possible, pay whatever you can during the forbearance in order to cut down on the amount you owe at the end.
Repayment Plan: The second option is to go on a repayment plan. With this, you make your regular mortgage payment plus some extra in order to pay off the amount you still owe from your forbearance over a set period of time.
Tacked on to the end: The months of non-payment could be added to the loan period, extending the loan (and paying more interest).
Modification: A modification changes the underlying terms of the loan. The interest rate may change. It may be extended from 30 years to 40 years. There are other unknowns.

Get it in writing
Once you're able to secure forbearance or another mortgage relief option, ask your servicer to provide written documentation that confirms the details of your agreement and that you're clear on what the terms are (see above).

Be aware of scams

Scammers often take advantage of vulnerable consumers during disasters and financial shocks. In addition to coronavirus-related scams, be aware of scams that falsely promise financial relief from your mortgage loan, or from foreclosure.

*This information is compiled from a variety of sources for informational purposes only. Be sure to communicate directly with your mortgage holder for their requirements and terms.