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If you are among the many people in the U.S. who have been laid off or furloughed due to the COVID-19 pandemic and are experiencing financial strains as a result, how you will pay your mortgage is probably one of your top concerns. Fortunately, temporary mortgage forbearance is available for people who find themselves in this position. Just make sure you learn all the facts before going down this road.
Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was signed into law in late March, banks are required to provide consumers facing financial difficulties due to the coronavirus with the ability to pause or lower their payments on federally-backed mortgages for up to 180 days. And borrowers have the option to seek an additional 180 days if needed. Under the CARES Act, banks cannot charge borrowers penalties, additional interest, or additional fees while their mortgage payments are paused. The CARES Act also ensures that choosing to pursue mortgage forbearance will not negatively impact your credit rating, as long as your payment status was up to date prior to the coronavirus.
Following are the types of mortgages that are eligible for forbearance under the CARES Act:
- Conventional loans backed by Fannie Mae or Freddie Mac
- FHA loans backed by the Federal Housing Administration
- VA loans backed by the Department of Veterans Affairs
- USDA loans backed by the Department of Agriculture
Even if your mortgage does not fall into one of the above categories, it may still be worth a call to your lender to see if you can work out some sort of temporary adjustment to your repayment schedule if your finances have been negatively impacted by the coronavirus.
Just because you have the option to temporarily suspend mortgage payments, however, it doesn’t necessarily mean that is your best bet. Since interest on your loan will continue to accrue and you will ultimately still need to make the payments after the forbearance period has come to an end, if you can continue to make payments that is still your best plan of action. In some cases, banks are actually requiring the full amount of missed payments to be repaid as soon as the forbearance period is up, so be sure to find out the exact repayment terms being offered by your bank.
Repaying three months’ worth of missed mortgage payments could be extremely difficult to swing after being out of work for a few months, so talk to your bank and see if there is another option you can work out with them, such as adding missed payments to the back end of your loan or boosting your monthly payments for several months until the missed payments have been repaid. Just make sure you know what you are getting into before pursuing the forbearance option.