In times of financial hardship, homeowners often find themselves struggling to keep up with their mortgage payments. One of the relief options available is mortgage forbearance, a temporary measure that can help homeowners avoid foreclosure and get back on their financial feet. Here’s a comprehensive guide to help you understand what mortgage forbearance is, the options available, and how to navigate the process.
Mortgage forbearance is an agreement between you and your mortgage servicer that allows you to temporarily reduce or suspend your mortgage payments for a specified period. This is not a forgiveness of payments but rather a postponement, meaning you will still need to repay the missed payments eventually.
Forbearance can be initiated due to various hardships, such as damage to your home from a natural disaster, illness or injury leading to increased healthcare costs, or any financial hardship that results in missed mortgage payments. For example, during the COVID-19 pandemic, many homeowners were eligible for COVID-19 Forbearance, which allowed them to pause or reduce their mortgage payments for up to 12 months.
To be eligible for forbearance, you typically need to demonstrate a financial hardship. For Fannie Mae and Freddie Mac-backed loans, the initial forbearance period can be up to six months, with possible extensions. For FHA loans, you can request a COVID-19 Forbearance for up to six months, with an additional six-month extension if needed and if the initial forbearance period ends on or before May 31, 2023.
Once the forbearance period ends, you will need to repay the missed payments. Here are some common repayment options:
This involves paying the total amount of missed payments all at once at the end of the forbearance period. This can be a challenging option for many homeowners, but it is a way to quickly resolve the outstanding balance.
A repayment plan allows you to pay back the missed payments over a specified period, usually up to 12 months, in addition to your regular monthly mortgage payment. This option spreads out the financial burden, making it more manageable.
With this option, you resume your regular monthly mortgage payments and defer the missed payments until the end of the loan term, when the home is sold, or when the loan is refinanced or paid off. This deferred amount does not accrue additional interest.
A loan modification involves permanently changing some terms of your loan to make your monthly payments more affordable. This could include extending the loan term or reducing the interest rate. For example, the COVID-19 Advance Loan Modification (ALM) offered by FHA aims to reduce the monthly principal and interest (P&I) payment by at least 25%.
You can also consider refinancing your loan to obtain a new loan with a new interest rate and term. To qualify, you typically need to be off the forbearance plan, have made at least three consecutive monthly payments, and meet the lender’s eligibility requirements.
During the COVID-19 pandemic, additional relief options were introduced to help homeowners. The FHA COVID-19 Recovery Home Retention Options include:
Before your forbearance period ends, it’s crucial to contact your mortgage servicer to discuss your repayment options. Here are some steps to prepare:
If you are facing financial hardship and need further assistance, here are some resources you can turn to:
Mortgage forbearance is a valuable tool for homeowners facing financial hardships, but it requires careful planning and communication with your mortgage servicer. By understanding the available forbearance options and repayment plans, you can make informed decisions to protect your home and financial stability.
If you are considering mortgage forbearance or need help navigating the process, it’s essential to stay informed and seek professional advice. For more resources and tools to manage your mortgage, visit the WP Ultimate Loan & Mortgage Calculator website. You can also contact us for personalized assistance.
Remember, forbearance is not a one-size-fits-all solution, and it’s crucial to explore all available options to find the best fit for your financial situation. Stay proactive, and don’t hesitate to reach out for help when you need it.
