What to do if your mortgage forbearance is ending

Key insights:

• The mortgage forbearance options afforded by the CARES Act will expire soon.
• Talk to your mortgage servicer about the options you have for resuming your payments, or other options available, if you’re still struggling for income.
• Refinancing could be in the cards for you, depending on your ability to meet basic standards for getting a mortgage.

The CARES Act was passed in response to financial uncertainty caused by the COVID-19 pandemic, and has created relief for millions of Americans by providing up to a full year of penalty-free forbearance from mortgage payments. But with the CARES Act about to lapse for most Americans*, you may find yourself among the many again facing a monthly mortgage bill. Are you ready? If not, what actions can you take?

Options for repayment

As your mortgage forbearance ends, your mortgage servicer may offer you a handful of different options for getting your account back up and running. The most likely options you’ll see:

1. Pay off all the missed payments in one lump sum and resume your regular payments.
2. Add the missed payments to the end of your existing loan term. For example, if you missed 12 payments, your mortgage would now end 12 months later.
3. Defer your payments until your home is sold or refinanced.
4. Make increased payments over a set period of time until your account is current. Even a few hundred dollars extra every month could catch you up before too long.
5. Modify your loan agreement entirely.

Consider your finances and the terms offered by your mortgage company before deciding which path to take. And be sure that when you do pursue an option, you discuss how it affects both your monthly payment and your long-term payment schedule in detail.

Talk to your mortgage provider

Whether you’re back at work and making your regular wages, or still out of work and looking for more income, one thing is crucial: You should communicate with your mortgage servicer about your situation.

Every mortgage provider will be different, but some may offer you options if your financial hardship hasn’t resolved by the time the CARES Act forbearance expires.

Whatever the case, make sure you start your communications with the company early, and expect everything to take some time to resolve. After all, these companies are in unprecedented times, too, and they’re likely to be short-staffed to handle the volume of account changes coming in every day.

Ending forbearance early

Of course, your provider may not be opposed to you ending your forbearance relief plan early. Make sure you understand what would be required of you before ending your plan, though, in order to make sure you won’t be expected to pay your deferred payments up front.

If you’re not quite ready to end your plan, but want to chip away at your missed payments, you may consider making smaller payments as you’re able.

Can I refinance my mortgage?

One option you may look into is a refinance of your existing mortgage. Assuming you still meet the requirements for getting a mortgage, such as steady income and a low debt-to-income ratio, refinancing could provide you with a lower interest rate, meaning lower monthly payments now and less total interest paid over the life of your loan.

One thing to watch out for: If you’re just coming out of forbearance, you’ll probably have to wait before refinancing. Most mortgage providers require between three and six months of consecutive on-time payments to be eligible for refinancing.

Check on your credit

Before making any changes to your loan, you’ll want to study your credit report carefully. Your forbearance plan should not have been reported to credit agencies as missed payments, which could cause a harsh decline in your credit score. But mistakes do happen occasionally and can be fixed if they’re caught early! Better to be too careful and catch an error before it affects you later.

More questions about forbearance?

The fact is very few of us have been through a period in world history quite like this one. Millions of jobs have been affected, and millions of Americans have needed aid to make ends meet.

If you’re feeling anxious about resuming your payments, whether you’re back to a normal financial situation or still struggling to find permanent work, reach out to an Edina Realty agent or mortgage consultant. We’ll help you determine the best way to achieve home ownership.

* While CARES Act provisions are about to lapse, the federal government has extended the deadline to apply for forbearance for most federally-backed loans until the end of September. Read more here: https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/24/fact-sheet-biden-harris-administration-announces-initiatives-to-promote-housing-stability-by-supporting-vulnerable-tenants-and-preventing-foreclosures/

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