What to do when your mortgage forbearance ends

Mortgage relief is available under the CARES act, allowing those with federally backed mortgages to put their home loans in forbearance for up to one year. Millions of homeowners are now taking part in some type of mortgage forbearance program. While the forbearance period gives homeowners some much-needed help, many are already preparing for it to end.

What is mortgage forbearance?

Forbearance allows borrowers to pause or temporarily reduce mortgage payments for a certain period of time, but these payments eventually will come due. With most forbearance agreements, lenders and servicers expect you to repay everything back in full over time.

Many who need mortgage relief are hesitant to investigate forbearance options because they fear a large lump sum payment at the end of the period, but this isn’t always the case.

Repayment options vary by who holds your loan. For example:

• The Federal Housing Administration: The FHA does not require a lump sum payment at the end of the forbearance period. To help borrowers repay money owed, the FHA developed the COVID-19 Standalone Partial Claim. Eligibility varies, but this initiative is a zero-interest, no fee, junior lien on your property that becomes payable when you sell the home or pay off the home loan in full.

• Veterans Affairs (VA) Loans: These home loans also don't require a lump sum payment after forbearance ends.

• USDA Loans: These home loans don't require a lump sum payment, either. Post-forbearance repayment plans are available for USDA loans or borrowers can defer these payments until the end of their home loan.

MORTGAGE RELIEF: WHAT TO DO IF YOU CAN'T MAKE MONTHLY PAYMENTS

What to do when your mortgage forbearance ends

While the COVID-19 pandemic still lingers, many are back to work and assessing what to do when the initial 180-day mortgage forbearance period ends. If you're still struggling to make your monthly mortgage payment or playing “catch up” on repayment plans and your forbearance period is set to expire soon, here are the options available.

1. Contact your mortgage lender
2. Refinance your mortgage
3. Consider a loan modification
4. Extend your mortgage forbearance

1. Contact your mortgage lender

With the extended stay of COVID-19, lenders are navigating the unknown and trying to assess how to best provide additional relief to the nearly 4 million homeowners currently in a mortgage forbearance program. In short, your lender wants to hear from you and direct communication is the best way to avoid delinquency and foreclosure.

Data quoted in The Wall Street Journal reports over 600,000 people have a federally backed loan, are 30 days past due on their mortgage, and are not enrolled in some type of forbearance or relief program — largely out of fear of their lender. This is easily remedied, but consumers need to pick up the phone.

2. Refinance your mortgage

If you’re hesitant to extend forbearance again but still want to lower your monthly payment, refinancing is a strong option, especially with interest rates at record lows.

To understand just how much you could save on monthly mortgage payments by refinancing now, crunch the numbers and compare rates using Credible's free online tool. Within minutes, you can see what multiple lenders and servicers are offering.

You'll want to investigate if refinancing would impact your monthly budget and bottom line. Visualizing the numbers with an online loan calculator can help you understand what you’d pay both monthly and as the mortgage amortizes over time.

Credible can also help you find your potential savings via a mortgage refinance. In three minutes, you can get actual prequalified rates without any impact on your credit score.

MORTGAGES IN FORBEARANCE NOW ELIGIBLE FOR REFINANCING

Keep in mind a mortgage refinance does come with closing costs and lender fees, but many lenders allow borrowers to roll these costs into the new loan, so they do not have to pay money out of pocket at closing. After factoring in loan fees, determine if refinancing could significantly reduce your monthly payment.

What are today’s mortgage rates?

Data from Freddie Mac show the average interest rate for a 30-year fixed-rate mortgage at 2.9%.

Mortgage rates have been slowly falling since March, but with the looming presidential election, it is hard to imagine any substantial mortgage rates reductions on the horizon. For those considering refinancing, now is still a good time. Again, plug in your mortgage information into these free online tools to view mortgage rates and determine how much you can save on monthly payments and the total amount of your home loan.

HOW TO REFINANCE YOUR MORTGAGE

3. Consider a loan modification

A loan modification is different than a mortgage refinance. Instead, a loan modification happens under your current lender (rather than refinancing away to a different lender on a new loan). A loan modification entails the lender changing the terms under your current mortgage: either with a lower interest rate, modified monthly payment, or reduction in principal balance.

Rather than forbear your loan for another 180 days, if you can afford to pay something, it’s best to contact your lender and request a modification, if it's allowed. Paying something – anything – over time helps reduce the loan balance, reduces monies paid in interest, and helps borrowers to avoid a large amount due at a later date.

Borrowers typically need to formally apply for a loan modification and produce paperwork indicating hardship or inability to repay.

IS NOW A GOOD TIME TO REFINANCE YOUR MORTGAGE? 

4. Extend your mortgage forbearance

CARES act protections originally provided relief for up to 180 days, and borrowers can now extend again for another 180 days, up to a full year. Your lender may reach out as the end of your forbearance draws near, but do not wait to hear from them if you need to extend again.

Under the CARES act, only federally backed mortgages are eligible for forbearance, but many private lenders are participating in mortgage relief efforts for borrowers. As stated before, a proactive and open line of communication with your lender is the best option for minimizing the financial impacts of the Coronavirus on your mortgage loan.

Bottom line

There are many mortgage relief options available to you but there's not a one-size-fits-all solution. You should research each of these repayment plans carefully and determine which fits into your personal finance plans best.

However, if you're investigating the refinance option, make sure you utilize tools like Credible to find the best loan rates. It pays to do some comparison shopping — but when it comes to refinancing loan rates, mortgage lenders aren't all alike.

Use Credible to see just how much money you can save by refinancing today (with no impact on your credit score).