There is plenty of information doing the rounds regarding forbearance. Let’s start with the basics. Forbearance is NOT forgiveness. Simply put, it is only a temporary pause on your monthly mortgage payment until things are back to being better for you so you can resume making your mortgage payments.
Although forbearance will grant you a few months of relief from paying your mortgage, the time period that you may be eligible for will depend on various factors including:
- The type of loan
- Who owns the loan? (Fannie Mae or Freddie Mac)
- Who is your loan servicer
While the relief may last a few months, the bigger question is what happens after the forbearance period ends?
When the time period comes to an end there are three ways you can repay your skipped payments.
1. Lump sum payment:
This is the simplest and the best option if affordable to your unique situation. This option lets you pay all the skipped payments together at the end of your forbearance period. For example: your mortgage monthly payment is $2000. Your relief period was for 3 months. Your payment due at the fourth month will be $6000 ($2000 X 3) + $2000 (for the fourth month) = $8000.
If this lump sum payment is not an affordable scenario you can talk to your servicer regarding a new repayment option.
2. Start a Repayment Plan: This is the alternative where you may be given the option to divide the skipped payment ($6000) over the next six months ($6000/6 = $1000). Example: starting at the fourth month your payment will become $2000 + $1000 (the portion to be paid over the next six months to cover all the skipped mortgage payments but divided over a period of time) hence making your monthly payment of $3000 for the next six months.
3. Loan Modification: As the name suggests, loan modification is an option that will modify/change your loan terms. If you’re unable to pay your mortgage payment and your servicer lets you roll all the skipped payments back into your mortgage. This shouldn’t be your go-to option as loan modification will hurt your credit significantly.
4. Loan Deferment: Some servicers may provide this option to defer the skipped payments to the end of your loan term.
It is important to note that there is no one-standard solution for every homeowner when it comes to a mortgage relief program. Each servicer has their unique guidelines for granting forbearance. Please talk to your servicer to better understand the options you have and its repercussions and consequences. If you can afford to continue making your payment.. please do so. Make forbearance your last resort.