Did you enter a forbearance agreement with your lender when the COVID-19 crisis began? Maybe you lost your job, were furloughed, or have reduced hours. The CARES Act made it easy for you to put your mortgage into forbearance. The plan allowed you to stop making payments for 3 months. Now that the 3 months are almost up, now what?
It’s the aftermath that many borrowers didn’t think about. All they knew was they couldn’t make their payment in the heart of the crisis. Fortunately, you have options.
Pay the Full Amount Owed
Were you able to save money during the heart of COVID-19? Maybe you still put aside your mortgage payment but didn’t pay it in case of an emergency. If you have the funds and it won’t cause financial distress in other areas, pay the full amount owed. Most people will have a balloon payment due July 1st. If you have it, pay it and you reinstate your loan.
If you don’t, check out your other options.
Ask for a Repayment Plan
If you can’t afford the full amount owed, but can afford more than your regular monthly payment, ask for a repayment plan. Your servicer will divide the amount you owe (the three missed mortgage payments) over 12 months (or another period they choose).
This is in addition to your regular mortgage payment, so keep that in mind. For example, if your mortgage payment is $1,000, and you missed 3 payments, you’d pay an extra $250 per month on top of your regular $1,000 mortgage for the next 12 months.
Ask for a COVID-19 Payment Deferral
If you can’t afford a repayment plan, ask for a COVID-19 payment deferral. This plan defers the amount you owe from the forbearance and tacks it onto the back-end of your loan. It won’t accrue interest, but it will be due upon loan maturity.
For example, if you have 10 years left on your loan, the lender will add the 3 missed payments (in our example $3,000) to the amount you owe. It may be a balloon payment at maturity, so keep that in mind. This doesn’t change your mortgage payments or when your loan matures. It only changes how much you owe at the end of the loan’s term or sooner if you sell the home or refinance your mortgage.
Apply for a Loan Modification
A loan modification is your last option. This is the only option that changes your loan’s structure. If your payments are now unaffordable, apply for this assistance option. Your loan servicer will evaluate your financial position, what you can owe, and determine how they can help.
Some loan modifications lower your interest rate; others extend the loan’s term or reduce the principal balance. Your loan servicer will provide you with options. Once you choose the option, you’ll enter a trial payment period. If you make your payments on time during the trial (proving you can afford the plan), the lender permanently modifies your loan agreement.
Don’t ignore your forbearance plan and what you owe now that it’s almost over. Since we’re less than 30 days into the end of the plan, contact your servicer today. Find out your options and figure out what works best.
