In the aftermath of the economic turmoil and high unemployment levels created by the COVID-19 pandemic, lenders searched for ways to help customers weather the immediate storm. Guidance came from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which created important protections for mortgage borrowers.
If your mortgage is backed by a government entity such as Fannie Mae, Freddie Mac, HUD, USDA, or the Veterans Administration and you are experiencing hardship due to the pandemic, you may request up to 12 months—two 180-day periods—of mortgage forbearance. Choosing forbearance essentially allows you to pause payments for a period of time. If your mortgage is not government-backed, your lender may offer relief options on a case-by-case basis if your income has been affected.
If you have already applied for forbearance or are considering doing so, keep these four important steps in mind.
- Do your homework
When considering mortgage relief options, understanding the terminology and process is critical. Forbearance allows you to stop making payments for a period of time without penalty, but it is not forgiveness. You will still owe the principal, interest, escrow, and other components of the mortgage after the forbearance period is over.
Forbearance is also not “deferment,” where the paused payments are added to the end of the loan’s term, although that may be one option for a repayment plan after your forbearance period ends. If you can make partial or full payments during the forbearance period, that will help reduce the amount you owe when the period is over.
- Make the request
Forbearance is not automatic. You must request it. Many banks are processing an overwhelming number of requests, so it’s a good idea to use online tools if possible. You will likely not need to provide any other documentation. Under the CARES Act, government-backed loans are entitled to an initial forbearance period of 180 days. To request an additional 180 days, you must make a second request before the first 180-day period expires.
- Protect your financial well-being
Forbearance can help you overcome short-term financial setbacks, such as a temporary job loss or a reduction in hours, and keep your home without negatively affecting your credit score. Your mortgage lender won’t charge late fees or other penalties during the forbearance period. Those that were assessed for missed payments prior to you entering into forbearance and not yet paid will continue to remain on the account. In most cases, if your homeowners insurance and real estate taxes are included in your mortgage, they will be advanced by your servicer while you are in forbearance. If they are not included, you should keep paying your homeowners insurance while you’re in forbearance and contact your municipality about deadlines and options for your tax payments.
- Plan your next steps
Before your forbearance period expires, your lender will work with you to determine your best next steps. Your options may include a:
- Loan modification- This may include an extension on the end of your loan or an adjustment to your rate and term to pay the forbearance amount
- Repayment plan- It allows you to catch up gradually on the amount owed in addition to paying regular monthly payments
- Reinstatement- When you pay back the full amount of paused payments at the end of the forbearance period
Your lender is likely managing many requests for assistance during this time and will offer more specifics about the options available to you online. Once you make your request, your lender will contact you while you are in forbearance to determine your best option for repayment.
Government guidance is changing nearly every day on this topic. To stay informed of changes, be persistent and check sources like:
Be sure to check your mortgage servicer’s online communications as well, as they are frequently updated.
Most important, your home will not be foreclosed upon while you are in forbearance. Your goal to remain a homeowner is shared by your lender. Know that you have options and your mortgage lender is committed to finding a solution that works.
For more information about M&T Bank’s relief options, visit our COVID-19 relief center.
For additional financial education resources for homeowners, visit our Financial Education Center.
This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.