If you own a home in Birmingham, you might have gotten a notice about forbearance from your mortgage company. We reached out to people at Caliber Home Loans for our own personal mortgage forbearance 101, and now we’re here to share what we learned. Bottom line, if your income has been affected by COVID-19, forbearance might help.
1. What mortgage forbearance is
According to Merriam-Webster, the first definition is “a refraining from the enforcement of something (such as a debt, right, or obligation) that is due.”
In the current climate, people are talking about mortgage forbearance as an alternative to foreclosure. The beginning of the month comes and your mortgage is due. Suddenly, due to the impact of COVID-19, you find yourself with less or even no income, and you know you can’t make that payment. Rather than face the prospect of losing your home, you can apply for forbearance.
What it means to you as a homeowner is that once your mortgage company has agreed to grant you forbearance, you have a set period of time (for example three months) when payments stop. While you can apply for a forbearance extension, you’ll still owe the money when forbearance is over.
Ideally, you continue paying your taxes and insurance during this time, but no additional interest or penalties accrue. Companies will not charge late fees and will not report late payments to credit bureaus. Of course, when the forbearance period is over, you will need to pay the money back on time.
2. What forbearance is not
Sometimes when you’re dealing with an unfamiliar concept, it’s helpful to know what it’s not, just to clarify any confusion:
- Forbearance isn’t an incentive to buy a home—in fact, new homebuyers will likely face stricter requirements in order to obtain a loan given the number of mortgages that are in forbearance.
- It’s not debt forgiveness—you’ll still have to make missed payments, just at a later date.
- It’s not “skip-a-pay”—in these programs, skipped payments are often tacked onto the end of a loan (for example a credit card bill). These programs don’t apply to mortgages.
3. Who it’s for
According to Joe Ventrone, VP of Federal Policy and Industry Relations with the National Association of Realtors, “forbearance should only be used by homeowners who are genuinely in distress and cannot afford to make payments.”
If your job came to an abrupt halt recently due to COVID-19, or you’re on furlough, or you’ve been sick with COVID-19 and unable to work, this forbearance is designed for you.
4. Why forbearance matters right now
So many people’s livelihoods have been impacted by shelter-in-place orders, and claims for unemployment are up. Mortgage lenders know this and are committed to helping families and individuals stay in their homes.
The best thing to do is if you know you’re not going to be able to make your payments, contact your mortgage company ASAP to ask about their forbearance program.
5. How it works
You’ve no doubt heard of the CARES Act, which was signed into law on March 27, 2020. These are some of the rights the Act gave consumers:
- The right to request a forbearance for up to 180 days (6 months)—if they’re current on payments.
- The right to request one extension for up to an additional 180 days (6 months).
You’ll need to check with your mortgage company to find out the specific terms they offer. Most have information about this on their website, along with special forms to fill out or numbers to call. Some companies, for example, offer 3 months of forbearance to those who qualify, with extensions available to those who experience continued hardship.
Usually, after the forbearance period is over, homeowners need to catch up on missed payments. There are usually three options for this. You’ll need to work directly with your lender to find what they offer and what works best for you.
Please note that not paying on time on a forbearance agreement after the forbearance period is over can impact your credit and your future ability to refinance your current mortgage.
- Pay in a lump sum.
- Apply for a payment plan that allows you to pay a set additional amount each month for a period of time along with your regular payment until you’re caught up.
- Negotiate a loan modification. With this option, whatever you haven’t paid gets added to the balance of your loan and paid over time.
6. When to start thinking about forbearance
If you own a home, it’s good to learn about forbearance now so if you or someone you know needs it now or in the future, you’re not starting from square one.
If you know you’re not going to be able to make your mortgage payments due to COVID-19, it’s time to reach out for help now.
7. How to apply for forbearance
Look at your mortgage statement or log in to your account to find phone, email and web contact info for your mortgage company. You’ll want to find out how mortgage forbearance works in your particular case. Every loan is different.