As the economic impact of the coronavirus pandemic continues to impact many homeowners, borrowers are worried as to how they will make their monthly mortgage payments. This pandemic is not only hitting business hard but individuals as well, as over 10 million Americans applied for unemployment in March 2020.
If a borrower is behind on their mortgage payment, on the verge of missing a payment or experiencing a temporary hardship due to the coronavirus, forbearance may be the perfect solution.
Forbearance is the ability to temporarily suspend or reduce a federally backed monthly mortgage loan for a specific period of time. It allows the borrower to deal with other short-term financial obligations so they have time to become financially stable.
A borrower with a federally-backed mortgage loan will be granted forbearance up to 180 days by submitting a document request to the company they make payments to declaring that they are experiencing financial hardship due to the COVID-19 health crisis. If the borrower chooses a forbearance they are considered delinquent and will not be able to pursue a refinance until all payments are up to date.
At the end of a forbearance period, the borrower will have to repay the amount that was reduced or suspended. However, these payments can be handled in a few different ways. The first is to pay the total amount in a lump sum, the second is to enter into a repayment plan, and the third is to modify the mortgage terms to create a new affordable long-term payment.
While mortgage forbearance is a short-term relief for borrowers, loan modification agreements may be a permanent solution for a borrower who may be in a more dire financial situation. With a loan modification, a lender is able to reduce interest rates or extend the length of the loan term which would essentially reduce the borrower’s monthly mortgage payment. Regardless of which option a borrower is interested in pursuing, we recommend starting a dialogue with a loan servicer to understand and explore all options available.
If the coronavirus has affected your ability to meet your obligations please contact us at (760) 930-0569 to discuss further.