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Forbearance: Everything You Need To Know

Whether it’s employment issues, medical hardship or something else that’s affecting your ability to pay the bills during these difficult times, there are some options that can offer a little relief. One of the options may be mortgage forbearance.

What Is Mortgage Forbearance?

If you’re having trouble making your monthly payments, forbearance can be a helpful tool toward getting help paying your mortgage. In simple words, a mortgage forbearance can pause monthly payments for homeowners dealing with a short-term hardship for a certain period of time. The loss of a job, a recent disability affecting your ability to work, or issues related to COVID-19 are few examples of hardships that would be likely to qualify for a mortgage forbearance. According to the Coronavirus Aid, Relief and Economic Security (CARES) Act, homeowners have now the right to request and obtain a mortgage forbearance for up to 180 days, with the option to ask for an extension of an additional 180 days.

How A Mortgage Forbearance Works

The first step is to contact your servicer. Your servicer is the company that sends you your monthly mortgage statement and manages your loan. They’ll let you know what you qualify for and get the process started.

Next, you’ll decide the terms with your servicer. This will include determining the length of the mortgage forbearance period, the amount of payment required, if the servicer will report the forbearance to credit bureaus and how you’ll repay the servicer after the forbearance period ends. When the forbearance period ends and you fulfill all the terms, the process is will end. However, the effects can last longer.

Effects

There are some immediate positive effects, such as not needing to pay your mortgage for a period time. However there are some negative consequences. Your mortgage forbearance will be reported to credit bureaus, unless your servicer has agreed not to report it. This means that you’ll need to work on reestablishing yourself as a credible borrower before being approved for other loans. This involves making good on the terms of your mortgage forbearance and then going 12 months with no missed payments.

How It Will Affect Your Payments

With a mortgage forbearance, the servicer agrees to accept reduced or no payments at all from you for up to 12 months. But at the end of that period, you’ll need to start making regular payments again and catch up on amounts you owed.

Depending on the situation, you may have several options in order to catch up on your payment.

  • Repayment Plan: With this option, a part of your past-due amount is added to your regular mortgage payment each month until you’re current.
  • Deferral or Partial Claim: With a deferral it’s aside all or part of your past-due amount to be paid when your loan is paid off, your house is sold or you refinance your loan.
  • Loan Modification: You may qualify for a loan modification. The terms of your existing loan will be modify to include your past-due payments.

Moreover, you can choose to pay your total past-due amount immediately upon coming out of the forbearance.

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