Skip or Reduce Payments With a Mortgage Forbearance
The COVID-19 Shelter-in-Place mandate has created a crisis among many who depend on an income to pay their mortgage. Because of the mandate that only “essential” businesses are to remain open, and because of the loss of revenue, many companies are forced to close their doors and terminate employment, leaving employees with a loss of income. If an employee is fortunate, the company will still send a paycheck on a regular basis for as long as they are able. If an employee is not fortunate, the company may temporarily or indefinitely lay off the employee and the employee will not receive a paycheck.
There may be an option to obtain unemployment compensation, but oftentimes such compensation is not enough to pay all of the out-of-work employee’s bills.
If you are an out-of-work homeowner, you face the burden of not having enough income to pay your mortgage bill. When homeowners do not pay their mortgage bill, they run the risk of losing their home and having adverse remarks placed on their credit report.
Forbearance may be a solution to help homeowners manage their financial stability during the current crisis.
What is forbearance?
To alleviate some of the stress associated with homeowners not being able to pay their mortgage, lenders may offer a solution called forbearance. Forbearance allows the homeowner to skip or make reduced payments toward their mortgage. An agreement is entered into by the lender and homeowner and the terms are set prior to entering into forbearance. The homeowner may be allowed to make zero payments or make minimum payments for a specified duration of time. This duration of time can be as short as three months or as long as six months.
During the forbearance period, the lender will not charge late fees and will not send derogatory late payment remarks to the credit reporting bureau, thus preserving the homeowner’s credit rating regarding mortgage payments.
Forbearance does not mean forgiveness
It is important that homeowners do not enter into a forbearance agreement too quickly. If you are able to keep paying your mortgage payments, keep paying them. On the other hand, if you are not able to continue to make your mortgage payments, the best thing to do is contact your mortgage lender right away so they can help you determine the best step to take regarding your mortgage payments.
While forbearance allows the homeowner to skip or make reduced payments, at the end of the forbearance period, the skipped payments and the unpaid portion of the mortgage amount is required to be paid back to the lender. To pay back the amount owed, the lender may offer one of several options in which the homeowner may choose to pay back the unpaid mortgage payments:
- Pay a lump sum in a one-time payment, or
- Add a specific amount to the regular payments each month until the total amount is repaid, or
- Refinance to add the past due payments to the end of the loan, or
- Cure the amount due through a loan modification. With a loan modification, the terms of the original loan are modified to a payment that is more affordable.
Whichever option is offered, before selecting an option, the homeowner must consider their current financial situation and how their decision may affect their overall financial health.
When you face a crisis and cannot pay your mortgage
When homeowners face a crisis that affects their ability to pay their mortgage, homeowners should talk to their mortgage lender immediately and explain to the lender the nature of the crisis.
Forbearance is not automatically extended to homeowners in crisis. Forbearance must be applied for and approved before it is offered as a solution to the homeowner.
Before offering a solution, the lender will need to review your situation to determine whether or not you make a good candidate for pay-back solutions. Be prepared to provide the following information to help lenders accurately review your case and ultimately determine whether or not they would be willing to help you.
- Share the specifics of your crisis situation. Give the lender information about how the crisis came about and how long you expect to be in crisis.
- Show the lender your current financial situation. The lender will want to see:
- Your mortgage statement information.
- Your monthly debt payments such as car or student loans, installment debts, and credit card statements.
- Your income information. Show the lender your pay stubs and income tax returns.
Ask for help
Don’t be embarrassed to ask for help. There are many people who struggle during tough times. If you are struggling to make your mortgage payment during a crisis, get in touch with your mortgage lender as soon as possible to start a dialog about what can be done to help you.
In addition to job loss, there are other cases when a homeowner may seek forbearance. For example, a sudden illness, disability, divorce, death of the wage earner, or other unforeseen incidents can trigger the need to request forbearance.
Mortgage lenders, especially during the current COVID-19 crisis, are showing eagerness to help provide solutions to homeowners who need help paying their mortgage.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2020 Marlene Bertrand