Is your mortgage forbearance about to end?

Mortgage forbearance provided a lifeline for millions of homeowners during the most difficult months of the pandemic.

But with the end date for many forbearance plans rapidly approaching, homeowners will have to decide how to move forward.

Do you need to extend your COVID forbearance plan for another 3-6 months? Or are you ready to exit — and if so, what are your options? Keep reading to find out what you should know.

Mortgage forbearance end dates

Under the CARES Act, homeowners with conventional, FHA, VA, or USDA loans could request an initial home loan forbearance for up to six months. They could also request a six-month extension, for up to one year of total forbearance.

“Forbearance plans are based on when you requested them,” explains David Shapiro, president and CEO of EquiFi Corporation.

That means homeowners who entered forbearance plans early in the coronavirus pandemic are likely nearing their forbearance end dates.

For example:

• Say you have a conventional mortgage loan
• You initially requested forbearance on September 1, 2020
• At the end of your six-month forbearance period, you requested a six-month extension
• Your current forbearance plan would be set to expire on September 1, 2021

Remember that when you exit forbearance, you’ll need a plan to make up the payments you missed during that period. Here are your options.

Options after your forbearance plan ends

If you’re ready to resume payments at the end of the forbearance period, be prepared for what happens next.

“Forbearance is not loan forgiveness. Borrowers will still owe the principal and interest that they didn’t pay during the forbearance period,” notes says Dongshin Kim, assistant professor of finance and real estate at Pepperdine Graziadio Business School.

“Borrowers will need to make both the regular mortgage payments and also all the payments they missed while the loan was in forbearance.”

You will typically have several options for repayment once forbearance expires:

1. Full repayment, which is a one-time lump sum payment. It’s possible to pay back all the missed payments at once. But lenders are NOT allowed to require this. “If you are unable to pay the lump sum, you have other options,” says Jackie Boies, senior director of housing services at Money Management International.
2. Make intermittent payments, meaning you repay the missed amount over 3-12 months on top of your regular monthly mortgage payments.
3. Lengthen your loan term and pay off the missed amount at the end of the extended loan term, via additional mortgage payments.
4. Payment deferral. This option lets you pay off the missed amount when the home is sold or refinanced, or at the end of the loan term.
5. Pursue a loan modification. “This helps borrowers who are at risk of default change their mortgage terms — usually including a lower interest rate, reduced length of the loan, or reduced monthly payment,” adds Boies.
6. Sell your home and keep your equity.  Nationally home prices rose about 17% in the last year, creating trillions of dollars in equity.  Unlike the financial crisis of the late 2000's, most homeowners have plenty of equity in their home in order to sell while covering the costs of the sale and the interest accrued during their forbearance period.  The sale may still leave you tens of thousands of dollars left over to move into a new home.

A new mortgage relief plan from the Biden Administration allows modification of eligible VA, FHA, and USDA loans, reducing monthly payments by 20-25 percent. The Federal Housing Finance Agency has similar options for conforming loans.

The right option for you depends on your current finances, employment status,  ability to resume mortgage payments, and ability to move into a new home.

When you contact your loan servicer, be sure to discuss every option in detail so you know exactly what to expect with the repayment plan you select.

Expect delays when contacting your mortgage servicer

The experts warn that you should anticipate a few possible snags and setbacks post-forbearance, especially when it’s time to contact your loan servicer.

“Borrowers should expect very long delays and may experience inconsistency in customer support representatives,” cautions Shapiro.

“Loan servicing organizations are not all properly staffed for the expected volume of forbearances, and they can’t train support agents fast enough to meet their needs."

Even if you can’t get through on the first few contact attempts, don’t give up.

“Be patient, but be persistent. Mortgage servicers have struggled to keep up with calls during the COVID crisis, but many have made online options easy and added staffing,” says Boies.

Keep a close eye on your credit report and score

If your mortgage has been in forbearance, check your credit report carefully.

CARES Act rules state that mortgages in forbearance should not be reported as having late or missed payments. And the forbearance plan should not harm your credit score.

But this is another area where mistakes can happen.

“Sometimes there can be mistakes and issues with credit scores that can pop up around forbearance,” Kim says.

Remember, lenders and servicers have never before had to deal with mortgage forbearances on this scale. So it’s up to the borrower to be extra-vigilant and make sure nothing slips through the cracks.

Check your loan statements every month and stay on top of your credit report to make sure your score hasn’t been negatively impacted by forbearance.

Can I end my forbearance plan early?

You don’t have to wait for your six- or 12-month forbearance period to come to an end. Instead, you can opt to exit forbearance earlier than expected.

Just be prepared to pay back the amount you weren’t able to pay while forbearance was in place, cautions Kim.

“The best time to end forbearance is when the borrower is comfortable and able to make payments, including the additional money for repayments they owe,” Kim adds.

If you’re ready to end forbearance, contact your loan servicer and request this.

“But be sure your financial foundation is strong enough, meaning you have some type of emergency fund to back up your ability to pay your mortgage,” suggests Shapiro.

And, make sure you understand your options for repaying the missed amounts so you’re ready to discuss them with your servicer.

Refinancing after mortgage forbearance

Refinancing after you exit forbearance could be a smart move.

If you’re able to lock in a lower interest rate and monthly payment, it could make resuming your mortgage payments that much easier.

That goes double for homeowners who decide to repay their missed loan amount by adding a little extra to each monthly payment.

Typically, you won’t be able to refinance right away. But you might be able to do so after you’ve been making payments for a few months.

For most major loan types — including conventional, FHA, and USDA loans — you need to have made at least 3 consecutive payments after exiting forbearance in order to be refinance-eligible.

As long as you meet basic loan requirements, you shouldn’t have to wait longer than 3 months to refinance

Refinance waiting periods on FHA loans may be less than 3 months for some borrowers who qualify for a Streamline Refinance.

The VA loan program is even more lenient.

The VA doesn’t impose a specific waiting period to refinance after forbearance. It only says VA lenders must verify that the borrower has recovered from their financial hardship.

Keep in mind, refinance requirements will vary by lender.

If your current mortgage lender wants to impose a longer waiting period to refinance, shop around for a different lender that can help you refi sooner.

As long as you meet basic credit, income, and debt requirements, you shouldn’t have to wait longer than 3 months after your forbearance plan ends to refinance

Selling your home as a strategic option

As mentioned earlier, nationally home prices are up 17% in the last year.  If you're in forbearance, your best option may be to sell in this hot seller's market, pay off the accrued interest, and still have money left over.  As with refinancing, you may need to show three consecutive months of payments on your current loan to qualify.  After that, you should be in a position to qualify for a new mortgage at today's incredible interest rates.  

Theoretically you could be able to make a few payments, sell your current home, and buy a new one with a lower payment (or larger home with a similar payment) using your equity as a down payment on a new home!  Give us a call to walk you through your options with a strategic sale.