Mortgage forbearance: is it the right option?

By Johanna Gómez:

Recently I have been asked, what is mortgage forbearance? How does it work? Would it be the right option if I can’t afford to pay my mortgage?

Mortgage forbearance will temporary help you during a financial setback, but there are some considerations to take before you make a decision. You will be able to skip or make reduced payments for a defined period of time. Your lender will discuss the time period, how the interest accrues and how you will repay the debt after the forbearance period.

First, I would like to recommend calling your lender as soon as you know you have a financial hardship. Take action immediately to discuss what options might be available to you. They can present to you loss mitigation options to alleviate the financial burden. If they offer mortgage forbearance, you should ask your lender the following questions:

·     The length of the forbearance period

·     If any, the amount of payment required during the forbearance

·     If interest and penalties will be waived or forgiven during the forbearance period

·     Whether the lender will report the forbearance agreement to the Credit Report Agencies (CRA)

·     How the amount owed will be repaid to the lender after the forbearance period ends

The mortgage forbearance period – Generally the mortgage forbearance is intended to alleviate a short term financial problem and the agreement does not last more than a year.  

Payments during mortgage forbearance – Your payment can be completely waived or partially reduced during the forbearance. Make sure you ask your lender how interest and penalties are going to be assessed. You might end up with a higher balance to pay if interest and fees are cumulative during the forbearance agreement.

Impact to your financial future –You may want to discuss with your lender if they will be reporting the forbearance to your credit. If they do, your credit will be impacted, and you will have to re-establish credit after the forbearance period. Some lenders are offering options and have agreed to not report it; most lenders would like to see you made up the forbearance period. If they agree, please get it in writing. Make sure your agreement states that your credit will not be negatively impacted by the forbearance.   

Repayment - If you decide to move forward with a forbearance plan, it is important to ask your lender how you will be required to pay back the amount after the forbearance agreement period, and if there will be any late fees or interest accrued in your account. These are some of the most common questions to ask:

·     Will you owe the sum of all unpaid amount in a lump sum once the pause period has ended or at the end of the loan term? 

·     Can the loan term be extended and missed payments added to the end of your mortgage? 

·     Will your subsequent monthly payments be higher for a period of time to make up the deferred amount?  If so, how much higher your payment will be?

Most lenders will require completing an application whether it is by phone or online. They will suggest getting financial counseling and will ask for few items such as:

•Most recent mortgage statement

•Estimate of your current monthly income

•Estimate of your current monthly expenses

•An explanation of your financial hardship (a hardship letter along with documents that substantiate your situation)

The government has made a provision for those directly affected by COVID-19 and facing financial consequences due to the impact of these uncertain times. Ask your lender about the CARES Act and the provisions that might help you during this setback. The lender must be able to assist in explaining the process and all options available to you.

We also suggest you get everything that is promised to you to and get it in writing. Make sure all that is discussed with your lender is stipulated in your forbearance agreement. Last but not least, be aware of scams and scammers looking to take advantage of consumers. Do not provide your address, Social Security information or sensitive personal data that can be used if you suspect you are not dealing with your lender. Make sure you are working directly with your mortgage company and once again always get everything in writing.

If you are interesting in more of our programs please contact us at UF/IFAS Extension Osceola County at 321-697-3000. For more information about our programs visit us at http://sfyl.ifas.ufl.edu/osceola/.

Johanna Gómez is a faculty extension agent with UF/IFAS Extension Osceola County.