Along with unemployment, stimulus checks, food stamps and tax extensions, the federal govt is also giving relief to those with federal-backed mortgages unable to pay from the state of the economy.
It's called Mortgage Forbearance, and it allows you the ability to suspend any federally-backed mortgage payments interest and penalty-free for up to 180 days. And 180 days again, after that, if you are still affected. This is part of the CARES Act legislation passed into law.
The headline is flashy enough -- suspend your mortgage payments for up to 1 year with no interest or penalties. But the reality, as usual, is much more nuanced and confusing than that.
Here's 5 things you need to know if you are in need of mortgage forbearance:
1. Your loan needs to be federally-backed. The good news is, most mortgages are. About 75% of all mortgages are. And even many privately funded mortgages are offering some version of this mortgage forbearance right now. But to qualify for the CARES Act Mortgage Forbearance program, your mortgage has to be federally-backed.
That means mortgages backed by:
The Federal Housing Administration (FHA)
US Dept of Veterans Affairs (VA)
US Dept of Agriculture (USDA)
If your mortgage isn't backed by one of these programs, you don't qualify. It should be as easy as looking at your last mortgage statement to see where the loan was backed. If still unclear, you can search here.
2. Forbearance is not the same as forgiveness. You will still have to pay any mortgage you suspend during forbearance after the fact. It won't be forgiven, just put off until a later due date without interest or penalty or credit dings.
3. There are 3 different ways to pay it back after forbearance ends, and they are not created equal.
1. A single balloon payment once your forbearance ends. Meaning if you get forbearance for the full 6 months, you won't have to pay your mortgage at all during that time, but they will ask for 6 months worth of your mortgage payments all at once at the very end. This is by far the least appealing option, and honestly most should not accept this option if offered by your mortgage provider. You can negotiate, and should try for option 2 or 3.
2. They work out a payment plan with you, and add the extra monthly to your mortgage going forward, until its paid off. So again, if you got the full 6 months, after its over you would pay that 6 months off in small chunks at a time. It will be interest and penalty free and the terms are on a case by case basis, to be worked out and negotiated between you and your service provider.
3. They add your forbearance months to the end of your mortgage loan. This is the most appealing option by far. But not everyone will be offered this option. In fact you might have to negotiate and straight out ask for it. That's recommended actually. This would extend your home loan by however long you did forbearance for, but at no interest or penalty.
4. Contact your mortgage service provider, and be prepared to wait and then answer questions. Mortgage forbearance isn't automatic; you will have to request it.
Just like with unemployment and other assistant programs, help lines are absolutely flooded right now. Reach out as soon as you can but be prepared for much longer wait times than usual, or an otherwise frustrating process to get someone on the phone. It could take days or even weeks to get an email response. Be patient and diligent.
Once you finally get through, they will ask you questions like:
Why can't you make your payments?
Is your problem temporary or permanent?
What is your current income and asset situation look like?
5. Know that you can negotiate your forbearance terms and conditions. You don't have to take the full forbearance of 6 months (180 days). You can request up to that amount of time, or anything less. Whatever makes sense for you. And it doesn't have to be your full mortgage, you can do partial forbearance if that helps and makes more sense.
Also whatever terms and conditions they offer you for repayment is negotiable. If you are applying, be sure and push for the option that makes most sense to your personal situation. Typically deferring payments and tacking them onto the end of your home loan is the best option.
You also do not have to accept forbearance if you don't like the terms and can't reach an agreement. So there is no penalty for trying.
That's a lot of info to digest and think about. Post any questions here, or any experience you have going through this process.