The federal government recently passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to assist Americans during the COVID-19 pandemic. The new law includes provisions for homeowners, one of which requires loan servicers to offer mortgage forbearance. There are several misconceptions about this relief service. If you’re considering this option for yourself and your family, this is what you need to know about mortgage forbearance.
First and foremost, mortgage forbearance is NOT mortgage forgiveness. Forbearance means that your loan payments will be deferred for a certain period of time, after which you will be responsible for those payments. According to the CARES Act, your loan will accrue interest during forbearance, but it will not be subject to additional interest or fees. Some loan servicers may request multiple months’ worth of payments at the end of forbearance, so you need to contact your lender to understand their repayment terms. The CARES Act stipulates an initial forbearance period for federally backed loans of 180 days, with an extension of 180 days if requested by the borrower. Forbearance is essentially a grace period where your payments will not be due monthly in order to provide immediate relief.
The government’s forbearance program covers mortgages backed by federally sponsored agencies: Fannie Mae and Freddie Mac. Your loan servicer may have their own forbearance options if you did not get your mortgage through a federal program. If you’re interested in mortgage forbearance, you need to contact your loan servicer to see if you qualify and what their terms of repayment are. Call the number located on your monthly mortgage statements to reach your servicer.
As mentioned in the CARES Act, your credit score should not be affected during forbearance, nor will you be charged any late fees. However, there is uncertainty around this topic and we’ll update this page as we get more information. One thing to be aware of is that your account will maintain the status it was in when it went into forbearance (i.e. current, delinquent, etc.) while in forbearance. If possible, be sure your account is current before going into forbearance. If you anticipate you will need more time in forbearance, reach out to your loan servicer before your initial term ends to ask what options are available. Understand that if you’re still able to make monthly mortgage payments, you should continue to make them.
This is a very uncertain and even stressful time for many homeowners, therefore it’s even more important to do your research before you sign up for any relief program. Make sure you have a thorough understanding of your loan servicer’s conditions so you won’t encounter any unpleasant surprises down the road.
If you decide forbearance isn’t for you, explore the idea of refinancing.