You may have heard of the CARES Act that has been making headlines offering relief to those affected by COVID-19, and you may also be wondering how this applies to your mortgage. This law allows borrowers, with federally backed mortgages, to request a payment reprieve in the form of forbearance. The law has raised a lot of questions, and we want to support you and be as clear as possible to help you avoid landing in a more difficult situation down the road.
Above all, borrowers should know that forbearance is NOT forgiveness. If a mortgage loan is delayed, it has to be paid back once the forbearance ends. Delaying the loan could lead to significant financial hardship in the future, as this scenario illustrates:
You currently have a mortgage of $1,500 per month.
Your friend tells you that you should request forbearance because you won’t have to make a payment for the next six months.
You call the servicer and ask for forbearance.
In one phone call, you get six months “off” from paying.
Seven months later, forbearance is lifted and servicer says,
“That will be $9,000 + $1,500, which is due now”. ($10,500 total)
You almost pass out and say, “WHY??”
Servicer: “That’s the 6 months of forbearance plus the current month.”
You: “I can’t do that, can we work something out?”
Servicer: “Sure, we will spread out the $9,000 over 12 months.”
You: “Phew....ok, good. What will that look like?”
Servicer: That will be $2,250 a month for the next 12 months.”
You: “I can’t afford that.”
You: “Can I refinance?”
Servicer: “No because the loan went into forbearance.”
As you can see, requesting forbearance is a very big deal because of the potential haunting consequences. It should only be considered as an option in extreme, job loss, circumstances.
As an alternative to forbearance, you may want to consider refinancing. When refinancing, you can delay up to two mortgage payments and potentially reduce your rate. Please don’t hesitate to contact us with any questions, we care and we are here for you. Give us a call at 801.542.0961 or live chat with a loan officer below!