You’ve likely heard that there is now a way for you to skip up to 12 months of mortgage payments (called forbearance) as a part of the coronavirus CARES Act. This is true as long as 1) you have lost income due to the virus, 2) your mortgage is backed federally and 3) you call your lender to make the request. But is delaying your mortgage from coronavirus a good thing to do?
If you met the criteria above and are granted a period of forbearance, you will not be required to make your mortgage payment(s). You will not be charged late fees, penalties or interest and your credit will not be affected. In addition, your lender will not be able to evict you during this time.
Forbearance sounds great! But delaying your mortgage from coronavirus may not be a smart move in your situation. Mortgage payments skipped must be repaid when forbearance is lifted. There are several options here to speak with your lender about, but the most likely scenario is that you’ll be required to pay all missed mortgage payments in one lump sum when you do decide to lift your forbearance. This means that skipping 2 months of your mortgage would mean you have to pay 3 months worth of mortgage payments in one lump sum on the third month.
There are other options, however. Talk to your lender about options they offer like loan modification or repayment plans. Either way, your lender is due this money and will call on you to provide it. Forbearance is just kicking the pain down the road. The catch doesn’t end there. Once you have been issued forbearance, you will not qualify for any new mortgages or refinance. It may even affect your ability to pursue other loans not related to real estate.
If you can make your mortgage payment. Do it. If you can’t make your mortgage payment now, ask yourself the following questions:
If you don’t see a way that you will be able to come up with the lump sum once forbearance is lifted and your lender is not open to allowing loan modification or a repayment plan, avoid forbearance. Everyone’s situation is different. However, in most situations, forbearance is not the right solution. Don’t set your future self up for failure.
Refinance: Talk to a lender about refinancing your house. This will allow you to skip one month of payment and may lower your payment by spreading your principal pay back over a greater time span. This means you will be paying more interest in the long run, but could put you into a more comfortable position today.
Loan: See if you qualify for an emergency loan. If you own a small business, you may be eligible for a loan under the same CARES Act that makes forbearance possible. If not, speak to your bank about programs they have available that you would qualify for.
Work: Consider taking up a new, temporary, job to fill the gap until you get back on your feet again. There are still places hiring during COVID-19! This is the best option for most since it solves the problem instead of kicking the can down the road.
Bryce and Laura DeCora are experts in all things real estate. Laura is a realtor and Bryce is an investor. Reach out if you still have questions and we can think of a way, together, to help you reach your real estate and financial goals.