Millions of Americans are trying to figure out how they can pay their monthly mortgage payment right now due to the ongoing coronavirus pandemic. Lawmakers stepped up in late March to help current homeowners defer their payments by offering forbearance to any mortgage borrower with a federally-backed loan.
It is important to look at the whole picture to make an informed decision before requesting forbearance. The last thing you want to do is make a rash decision that you may later regret. So, let’s break down how forbearance can affect you as a homeowner now and in the future.
Forbearance is a temporary reprieve – nothing more. And, not all loans are eligible for forbearance. Click here to learn more about eligibility under the CARES Act. Keep in mind, if your loan is eligible for forbearance, it is a financial band-aid that must be resolved later – either through:
- A repayment plan,
- A loan modification,
- Selling the property to resolve the delinquency, or
- Through foreclosure.
So, if you can keep making payments then do so! This is very important to your long-term financial plan.
There is no way around the system to “double dip” (meaning you stop making payments while simultaneously refinancing to lower your interest rate). Experts are predicting a historically low-rate environment in the housing industry for the next 6 months or so. There is no need to box yourself out of a cost savings later down the road for short-term help if you can afford your current payments!
You may want to look at your refinancing options to lower your monthly payments if you are experiencing financial stress but are still able to pay on your mortgage. To find out if refinancing might be a good option for you, click here or reach out to a Home Loan Specialist licensed in your state if you’re not currently working with one.
When it comes to your credit, you want to protect it. First and foremost, you need to ask questions and do not just assume your lender is following the new COVID-19 credit reporting guidelines. Under the CARES Act, there should not be a negative impact on a borrower’s credit score for payments missed during an approved forbearance.
Do not stop making mortgage payments until you have a written forbearance agreement in place. Otherwise, the servicer will report late payments to the credit bureaus, which could hurt your credit scores. How your lender reports your credit account under the CARES Act depends on whether you are up to date with your mortgage payment or not.
If you are already past due on your mortgage payments (by any amount) before you request help with your monthly loan payments, your lender can still report you as delinquent to all three credit reporting agencies (Equifax, Experian, and TransUnion).
- If you are past due on your mortgage payments (by any amount) and you make an agreement with your lender, and you bring your account current, that must be reported to all three credit bureaus that you are current on your home loan account.
- If you are up-to-date with your mortgage payments and you make an agreement with your lender to make a partial payment, skip a payment, or any other payment accommodation, it will be reported to all three credit bureaus that you are current on your home loan account. Keep in mind, this only applies if you are meeting all the terms of your lender agreement.
The big point we are trying to drive home with is do not jump into forbearance without knowing as much information as possible. Forbearance is mainly for people who have lost their jobs and simply cannot make their mortgage payments. Slow down and make sure you are making the wisest choice for you and your family since forbearance can impact your credit score, your short- and long-term financial plans, and possibly your options to refinance in the future.
Click here for more information about COVID-19 mortgage forbearance and the CARES Act.
Additional resources can be found at: https://www.coronavirus.gov/ and https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/