Several people I have spoken with lately have mentioned applying for forbearance of their mortgages. A forbearance is when your mortgage lender gives you a pause or reduced mortgage payments for a certain period of time. One friend said she applied and that she thought her lender was just going to add it onto the back end of the mortgage. I told her not to assume and to double check that in fact it would be added to the end of the loan duration.
It would be an unpleasant surprise if those payments became due immediately after the forbearance period. There is no doubt postponing your mortgage payment can free up your cash flow and help during these times. But before you commit to a forbearance, read and understand all of the fine print.
Your mortgage relief options depend on who owns or backs your mortgage. The Consumer Financial Protection Bureau (CFPB) offers tips to help you determine who owns your mortgage and next steps. It is not always the same lender you took the loan with, as often mortgages are sold.
To be eligible for the CARES Act protections, your mortgage needs to be federally owned or backed by one of the federal agencies and entities. These include Freddie Mac, Fannie Mae, U.S. Department of Veterans Affairs, U.S. Department of Housing and Urban Development, HUD, FHA or The U.S. Department of Agriculture, USDA Direct and USDA Guaranteed. If your loan is not backed by a federal agency or entity, check with your lender. All banks and lending institutions have been told to try and work with their borrowers who are having a difficult time paying their mortgage due to Covid 19. Additionally, some individual states are offering relief options so check your state’s website for details.
If this is something you feel you need to do at this time, you must contact your lender to start the process. Don’t just stop paying your mortgage. Under the CARES Act you can request a forbearance for up to 180 days. You can also request one extension for up to another 180 days.
Keep in mind a forbearance does not eliminate what you owe and it will need to be repaid.
Whatever payback terms you work out with your lender, get the details in writing. Make sure you confirm the specific details and dates. Be clear on whether you will need to pay all of your missed payments at one time or will additional payments be required at the end of your mortgage. For banks that are not backed by a federal agency or entity, their terms may be different.
Under the CARES Act your credit should not be affected if you have contacted your lender and followed the rules. Make sure to confirm this with your lender. The Consumer Financial Protection Bureau has details and resources to help guide you through this process.
About the author: Jeanette Pavini is an Emmy Award-winning journalist specializing in consumer news and protection. She is a regular contributor to The Street's Retirement Daily. Her work includes reporting for CBS, MarketWatch, WSJ Sunday and USA Today. Jeanette has contributed to The Today Show and a variety of other media outlets. You can follow her money-saving tips on Facebook at Jeanette Pavini: Better Ways to Save Community or go to JeanettePavini.com.