THE BILLS ARE PILING up, and you’re losing sleep over how you’ll pay the mortgage. Whether your income has dropped or expenses have increased because of the coronavirus pandemic, you are not alone. Many Americans need help with mortgage payments right now.
The good news is that help has arrived for many homeowners. The $2 trillion coronavirus relief package, known as the CARES Act, allows homeowners with federally backed loans to apply for up to 12 months of mortgage forbearance. That includes Freddie Mac-, Fannie Mae- and Federal Housing Administration-backed mortgages.
Should I Work With a Mortgage Broker?
Even mortgage servicers that don’t fall under the federal umbrella are offering deferment or forbearance options for homeowners who fear that they won’t be able to pay the next bill.
“When you’re financially strapped, it’s stressful, and people tend to go into deer-in-headlights mode,” says Eric Tolbert, financial advisor, Eric Tolbert & Associates, an advisory practice of Ameriprise Financial Services. “The first step is to have the conversation with your bank or mortgage servicer.”
Still, just because you can get help with mortgage payments doesn’t mean you should. Your lender might give you a break from payments but then tack them on, plus interest, at the end of your mortgage.
Should you seek mortgage forgiveness? Here’s what to know first.
What Are the Terms of Mortgage Forbearance or Deferment?
Mortgage deferment and forbearance both allow you to put off mortgage payments, but the plans are structured differently, explains Sara Singhas, director of loan administration at the Mortgage Bankers Association.
Forbearance allows you to temporarily pause or reduce payments to get through a rough patch. You will have to repay the missed payments, plus interest, after the forbearance period.
Deferment also permits you to skip payments, but it sometimes puts interest on hold. Those payments are due at the end of the deferment or can be tacked onto the end of the loan term.
The CARES Act mortgage provision is somewhat of a hybrid of the two.
Regular interest still applies, but no additional fees, penalties or interest charges will be added while payments are suspended. Your repayment schedule will depend on the loan servicer.
If your mortgage is backed by the federal government, the CARES Act allows you to suspend payments for 180 days. You’re also entitled to a 180-day extension if you need it, for a payment reprieve of up to 12 months.
“Then, borrowers can return to their regular mortgage payment, and for Fannie and Freddie loans, they can extend their loans by the same amount of time,” Singhas says. “So, if you take three months of forbearance, you’ll extend your loan by three months.”
A COVID-19 National Emergency forbearance allows you to pause FHA mortgage loan payments and does not require immediate lump sum repayment. The FHA developed what is known as a partial claim to help homeowners catch up on overdue payments.
A partial claim is a no-interest junior loan secured by your property and payable when you sell your home, refinance it or terminate FHA insurance on your mortgage.
Each mortgage servicer has slightly different rules. Talk to your servicer and find out the exact terms of your relief program.
Does Coronavirus Relief Apply to Escrow?
While your mortgage payments may be on hold, you might not get the same break from property taxes and insurance payments to an escrow account. “Most mortgages have an escrow account for paying property insurance and taxes, and those payments are not deferred,” Tolbert says.
Property taxes and insurance should continue to be paid if your mortgage has an escrow account, according to the Consumer Financial Protection Bureau.
Still, ask your servicer about escrow payments and any relief options. It can’t hurt.
Your credit will not suffer, as long as you abide by the terms of your mortgage deferment or forbearance.
When you put relief options in place, you can skip payments under the relief agreement without penalty. “The mortgage servicer will report the loan status as current during the period of forbearance,” Singhas says.
But contact the loan servicer before the payment due date if you think you will miss a payment. You will need to request a deferment or forbearance beforehand to avoid the lender reporting missed payments to the credit bureaus.