Millions of homeowners opted into mortgage forbearance under the Coronavirus Aid, Relief, and Economic Security (CARES) Act when the pandemic sideswiped the country. The first round of forbearance plans is about to expire in March.
With no additional forbearance extension on the horizon for those who have exhausted both the initial 180-day forbearance period and the 180-day extension, some homeowners might be wondering what’s next, especially if they’re still facing hardship.
If you either can’t afford your mortgage or can’t afford your regular mortgage payment and the extra forbearance payments, it’s important to come up with a plan before the expiration day arrives.
2.7 Million Homeowners Are in Forbearance
The total number of mortgages in forbearance has remained about the same for the last few months, accounting for about 5.38% of servicers’ portfolio volume as of January 24, according to the Mortgage Bankers Association. That makes around 2.7 million homeowners currently enrolled in forbearance plans.
“While new forbearance requests dropped slightly, the rate of exits from forbearance was at the slowest pace since MBA began tracking exit data last summer,” said Mike Fratantoni, senior vice president and chief economist at MBA. “Homeowners still in forbearance are likely facing ongoing challenges with lost jobs, lost income and other impacts from the pandemic.”
Once forbearance ends, homeowners are responsible for the missed payments and accrued interest. There are several ways to repay that balance, including:
- A repayment plan. In this scenario, you would resume your regular mortgage payments and add part of your forbearance balance to that payment each month, until your forbearance balance is paid off. Ask your lender if they can work with you to come up with a repayment plan that’s affordable.
- Lump-sum payment. Once the forbearance period ends, you would owe the total sum (principal and accrued interest) in one payment. If your monthly payments were $2,000 and you paused them for six months, you would owe $12,000 plus interest at the end of your forbearance.
- A deferral or partial claim. For homeowners who can afford to resume their mortgage payments but can’t afford more than that, you can defer the forbearance balance to the end of the loan (so when the mortgage ends, the forbearance balance payments begin) or you might be eligible for a junior lien, which puts off repayment until they refinance, sell or the mortgage ends.
- Loan modification. For borrowers who want to keep their homes, but can’t afford their mortgage payments and have come to the end of their forbearance options, they can apply for a loan modification. A loan modification is a free service that lowers the interest rate or balance of a home loan or extends the terms in order to make the monthly payments more affordable for the borrower.
Of course, there’s always the option to sell your home—which is a better strategy than missing more payments (after your forbearance period is over) and going into foreclosure. We’re currently in a seller’s market, which is excellent news for homeowners.
If you have equity in your home, you might be able to sell, repay your mortgage and forbearance and still pocket a profit. If this looks like the best path for your current situation, work with Shane Willis as soon as possible. He can guide you through the process before and hopefully help you sell or rent your home before there are any negative consequences to your credit score (late or missed mortgage payments).
Here Are Your Options After Forbearance Ends
Several mortgage experts gave their advice about homeowners’ best options after forbearance.
Consider Today’s Rental Costs
“In all situations, consider the rental prices available right now versus the prices of owning and managing a home. Choosing to strategically default can drastically hurt your credit score, which may have long-term repercussions. It may make more sense to sell your home, stabilize and when you’re ready, own a home again with a substantially lower interest rate on your mortgage payment.” —Andrew Wang, founder and CEO of Valon, a New York-based mortgage servicing company.
Foreclosure Is the Worst Choice
“It is far better to sell than to go into foreclosure and ruin your credit for a number of years. Many people have been forced into financial hardship due to the pandemic. Working to maintain a good credit rating is key to their recovery. Being in forbearance has no negative ramifications to one’s credit scores; however, not making payments and going into default and getting foreclosed upon is disastrous to a credit score.”—Melissa Cohn, executive mortgage banker at William Raveis Mortgage in New York City
You May Be Able to Pay Off Your Mortgage in a Sale
“If you decide to sell your home, you may find you’re able to ask for a sale price that would pay off your mortgage in full, especially since home equity levels are extremely high. But it’s important to note homeowners will have to pay for the months they were in forbearance, including interest owed.” — Dara Blume Clewely, director of financial risk and economics at online mortgage lender Better.com
Equity in Your Home Could Help You Remain in Place
“There are providers out there that will buy some of your home equity from you while letting you keep title and control of your home. The amount they pay for a slice of your home may be enough to bridge you to when you’re able to be stabilized.”—Andrew Wang
Consider Getting a Roommate
“Through home-sharing, it’s possible to earn an average of $10,000 a year that can be used to offset mortgage costs. There are also other financial gains, such as splitting bills and expenses with a housemate. Additionally, since home-sharing generates passive income, it’s still possible to pick up a part-time job or contract work to make up the slack.”—Riley Gibson, president of Silvernest, an online home-sharing platform geared toward retirees and empty nesters.