In this article, we discuss both sides of the loan forbearance conversation and your options if you are on the fence.
What is a Mortgage Loan Forbearance?
Loan forbearance is a common mortgage relief option that mortgage servicers will extend in times of intense emergency or hardship. If this mortgage forbearance is executed, your mortgage payments will get suspended for a certain agreed-upon period.
You still need to pay those payments but not in a lump sum.
You’ll receive a repayment plan maybe an offer for a loan modification or extension of your forbearance period.
CARES ACT Provides Relief from Covid-19
It’s reported that more than 3.4 million Americans are currently in mortgage forbearance, and 6.4 percent of all active mortgages are in forbearance. Total unpaid principal due to forbearance is $754 billion, according to Black Knight.
The CARES Act provided relief and help for homeowners who have government-backed mortgages including Fannie Mae and Freddie Mac, VA, USDA, and FHA mortgages.
Borrwers can take advantage of this and get protection for up to one year. During that period the lender cannot foreclose on your property.
Are Borrowers With Privately Owned Mortgages Protected?
The CARES Act does not provide relief if your loan is privately owned, however you’ll get workable options which usually includes adding the payments to the back of the loan.
Will You Have To Pay Extra Interest IF you Get A Mortgage Forbearance?
Its not typical for borrowers to pay extra interest, it should stay the same.
“During a forbearance plan, interest is not paid but still accrues in accordance with the terms of the note,”Tom Goyda – senior vice president, consumer lending communications at Wells Fargo
“Additionally, as required by the CARES Act, no interest accrues during the forbearance period beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the note.”
Andrew Demers, partner at Weiss Serota Helfman Cole & Bierman in Boca Raton, Florida, specializing in banking and real estate law says:
The only situation in which the loan interest might change is if the lender extends the loan maturity date or increases the loan interest rate
Is It Worth The Headache Applying For A Forbearance?
Many are faced with the hard decision to ask for a forbearance, this has its advantages in an emergency and should be reserved for those occasions.
Can you refinance your mortgage during forbearance?
When you ask for and are granted the forbearance, you are essentially notifying your lender that you cannot afford the current payments and you could be setting the stage for a disappointment later.
If you decide to ask for a refinance in the near future, you may be turned down because of the forbearance.
Since the forbearance is only a short term solution, you may not want to cause yourself long term problems because of it.
It’s not hard to get a refinance these days and the rates are at an all-time low, take advantage of this if you happen to be on the fence about pulling the trigger on your refinance.
Can Your Rental Properties and Second homes Qualify for Forbearance?
Properties that are owned by Fannie Mae or Freddie Mac, can qualify for forbearance if they’re used as rentals or second homes, but FHA, VA and USDA loans cannot get the forbearance.