For many Americans, mortgage forbearance has provided much-needed support during the coronavirus pandemic.
These programs allow homeowners to temporarily pause mortgage payments if they’re financially struggling.
As the economy continues to improve, many people are coming out of those hardship plans every week. The number of homeowners in forbearance steadily declined from 4 million in May 2020 to roughly 2.3 million in May 2021.
But what comes next is not simply returning to your old monthly payment. Your path forward depends on whether you’re financially stable enough to resume payments or if you need to extend your forbearance.
Here’s what to know about your options.
What to do if you’re still financially struggling
Under the CARES Act, most homeowners could request mortgage forbearance for up to six months, then extend the plan for an additional six months for a total of one year.
The one-year mark is approaching for some homeowners, but “if you are still unemployed and unable to make your monthly mortgage payment, you may be able to extend your forbearance,” said Jackie Boies, the senior director of housing and bankruptcy services at Money Management International.
Your options depend on the type of mortgage you have and the length of time you’ve been in forbearance.
Conventional loans: If your mortgage is backed by Fannie Mae or Freddie Mac, then you may request two additional three-month extensions, for 18 months of total loan forbearance, if you were in a COVID-19 forbearance plan before Feb. 28, 2021.
Government-backed loans: If your mortgage is insured by the Federal Housing Administration (FHA loans), Department of Veterans Affairs (VA loans), or the U.S. Department of Agriculture (USDA loan), you can request two additional three-month extensions, for up to 18 months total forbearance, if you were in a forbearance plan before June 30, 2020.
To receive an extension, “it is important that you reach out to your lender or mortgage servicer to discuss your options well before your forbearance expires,” Boies said. If you’re not sure who services your mortgage, you can look up this information using the Mortgage Electronic Registration Systems, or MERS, website.
How to leave a mortgage forbearance program
If you’re in a forbearance program, your loan servicer should reach out to you 30 days before the forbearance plan is scheduled to end. As part of your transition, they’ll help you understand how you can pay down your balance while keeping your account in good standing.
Typical options include:
Repayment plan: You can “arrange repayment with your servicer over three, six, nine, or 12 months in addition to your regular payment,” Boies said.
Payment deferral: This plan allows you to delay the missed payments until you sell the home, refinance the mortgage, or pay off the original mortgage loan.
Loan modification: With this type of arrangement, your lender agrees to permanently change your loan terms. The lender could lower your interest rate, lengthen your loan term, or even forgive some of your principal balance. Ask your loan servicer how the missed payments will be repaid, though.
Reinstatement: Homeowners with enough money saved can choose to clear all of their missed payments with one lump-sum payment. But your lender can’t require this — so if they mention it, ask about your other options so you can make an informed choice.
When you’re comparing options, keep in mind “there is no one-size-fits-all model for exiting a forbearance,” Boies said. “Borrowers will need to take a realistic look at their income, budget, debts, and mortgage payment. Fully understanding where you stand financially will best help you determine your course of action.”
Read more information and tips in our Mortgage section