Due to the COVID-19 pandemic a lot of homeowners are furloughed or out of work. They’re wondering how they’re going to make the next mortgage payment. There are some mortgage relief options out there, but get educated before you make the leap.
Should you apply for forbearance?
Chong Yi shares the benefits and pitfalls of applying for forbearance and other mortgage relief options. Things are changing quickly. In general, Chong feels that mortgage relief is a positive. It allows borrowers to put their mortgage payments on hold for several months. He warns there are pitfalls to think about before jumping at forbearance.
If you take forbearance for 3 months, do you have to pay it back all at once?
First, understand that only government backed loans can apply for forbearance. Like FHA or VA loans. The best way to find out if yours applies would be to ask loan servicer.
There are 3 ways that loans might be paid back.
Each loan servicer has a different policy. The CARES Act does not have a universal pay back plan. So call who you send your mortgage payment to for accuracy. [More about the CARES Act]
In general, there are 3 ways to handle payments that are being deferred.
- The unpaid payments are added to the back end of the loan. If you have a 30 year loan and forbearance for 3 months, you would pay for 30 years and 3 months.
- The unpaid payments are paid in one lump sum at the end of the forbearance period.
- The unpaid payments are spread out over several months, making your monthly payment higher for a certain amount of time.
Chong is concerned that 2 of the 3 options may leave borrowers unable to afford the monthly mortgage payment.
Who decides how the forbearance is paid back?
Each loan servicer has their own policy to pay back the forbearance. Borrowers much call their loan servicer to find out what their policy is.
What are the drawbacks of forbearance?
According to Chong there are 2 pitfalls.
- In order to pay back the forbearance, borrowers may be unable to afford the monthly payment.
- It is unclear how forbearance will affect future credit and borrowing power.
If you are struggling now, what are your mortgage relief options?
Chong suggest you first take a deep look at your budget. Is it possible to go leaner for the next few months? This is not free money. Secondly, if you must apply for forbearance, call your loan servicer and make sure you get the forbearance in writing.
We know you have questions about forbearance and CARES Act. You can find more information in these two posts below.
Have a question for Chong Yi? Read his bio and ask a question here.
Interview with Chong Yi and Fox 5 DC.