What Happens When Your Mortgage Forbearance Ends?

The Clark Team July 30, 2020

The pandemic and resulting economic recession has taken its toll on many Americans. For many, mortgage forbearance has come as a welcome relief during tough times. However, mortgage forbearance does not go on indefinitely, and will be ending soon. If you’re one of the millions of homeowners who has taken advantage of this program, then what do you do when mortgage forbearance ends? Let’s take a closer look at your options.

Contact your lender

The first thing you should do before your mortgage forbearance expires is to contact your lender. Every lender approaches forbearance differently. The only way to know exactly what your options are for your unique situation is to talk with your lender. Those options will be determined by the terms of your forbearance agreement.

Request an extension

If you’re still facing financial difficulties when your forbearance period ends, then contact your lender and ask for an extension. Was your forbearance granted under the CARES Act? Then you can ask for a 180-day extension. This allows you to postpone your payments for a total of 360 days. But don’t just stop making payments. You must contact your lender and formally extend your forbearance, or those late payments will have a negative impact on your credit score.

Refinance your mortgage

Mortgage interest rates have hit an all-time low. Right now, you can score a home loan for as little as three percent – possibly even slightly lower. If you’re planning to stay in your home long term, then refinancing your loan at a lower rate can save you thousands of dollars over the life of the loan. But be aware that refinancing will include closing costs that could amount to as much as six percent of the loan total. Refinancing may only make sense if you plan to live in your home for many more years.

Get a loan modification

Another option your lender may offer you is the ability to get a loan modification. If you’re at risk of defaulting on your loan, then you may be able to renegotiate the terms of your loan. This could include your monthly payment amount, the interest rate, or even the length of the mortgage. While this can save you money, you should know that loan modifications could cause a dip in your credit score. There may also be fees associated with your loan modification.

Sell

The real estate market is surprisingly hot right now. There are many more buyers looking for homes than there are homes for sale. If you’re in a tough spot financially, then now could be an excellent time to sell if you have equity built up in your home. Housing prices have remained steady through the pandemic, so this could be a smart financial move.

Foreclose

Finally, foreclosure is another option – but should be the last option you consider. If you’re too far behind on your payments and you can’t afford the fees associated with selling or refinancing, then foreclosure may be your only option. However, please note that the CARES Act prohibits lenders from foreclosing on homes until at least August 31 for those with loans backed by the federal government.

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