Understanding Mortgage Forbearance & Payment Relief under the CARES Act
In our last blog post, we talked about opportunities to refinance given the current rate environment because of COVID-19. We realize that not everyone will be in the position to refinance right now given the current environment. If you’ve experienced income or job loss due to COVID-19, mortgage forbearance may be an option for you. Today we’re sharing some information to help you navigate the process and make the right decision based on your individual circumstances.
What is Mortgage Forbearance
Provisions of the CARES Act that was signed into law on March 27th state that homeowners who are financially impacted by COVID-19 can request mortgage relief from their mortgage lender (or loan servicer).
What does that mean? What they’re talking about is forbearance. Forbearance is when the lender or loan servicer, the company that you make your monthly mortgage payment to, agrees to either suspend or reduce your monthly mortgage payments for a specified period of time and waive their right to foreclosure.
Mortgage forbearance is often combined with a reinstatement or a repayment plan to pay off the missed or reduced mortgage payments when your financial situation stabilizes. It’s important to note that mortgage forbearance is not mortgage forgiveness. You still have to pay the money back, in full, with interest.
Whom do I Contact for Mortgage Relief?
Your loan servicer, the company your mortgage statement comes from, is exactly whom you need to be talking to if you need to discuss mortgage relief and forbearance options. Don’t go to a mortgage broker or a new lender. To get accurate information, talk to whomever you’re making your mortgage payment to because they’re the only people you can make this arrangement with. A mortgage broker, new mortgage lender or loan officer cannot negotiate forbearance on your behalf.
Questions for Your Loan Servicer
There are some very important questions you need to ask your loan servicer prior to entering into a forbearance agreement. Understanding the full financial and long-term impact of forbearance will help you understand if it is truly the right fit for you. To help, we’ve put together a list of questions for you.
- How long will your payments be deferred for?
- When will the payments be due and how will they be due? There a few ways this can work.
- Will you be required you to pay back deferred payments in one lump sum.
- A loan servicer may provide an option to spread out the payments throughout the life of the loan and allow you to make extra payments along the way.
- A loan servicer could tack the deferred payments on to the end of the loan.
- Will late fees be charged?
- Will your loan servicer report you late to the credit bureaus? They’re not supposed to, but it’s important to ask.
Also, it’s important to point out that if you can afford to make your payment, you should continue to do so. The provisions in the CARES Act are intended to help those that have lost their jobs or are financially impacted in some other way due to COVID-19.
Is Refinancing a Better Option?
If you’re in the process of refinancing or you intend on taking advantage of these record low-interest rates, be aware that entering into a forbearance agreement will most likely make you ineligible to refinance for at least 12 months. This is something that many people are not aware of. If you still have your job and your pre-coronavirus income, you’ve got a lot to be thankful for and refinancing may be the right option for you.
If you have questions about taking advantage of today’s historic low-interest rates, please reach out to us at hello@newwaymortgage.com or by calling or texting us at (916) 465-6NEW. You can also visit our website at newwaymortgage.com to learn more or get started with the application process online!
If you have questions about mortgage forbearance, please reach out to your loan servicer using the contact information on your mortgage statement.
