How to Suspend Mortgage Payments If You’re Fired Due to COVID-19
Mortgage Forbearance Can Suspend Your Payments If You Lose Your Job
Many U.S. homeowners are currently unemployed or working reduced hours due to COVID-19.
If you find yourself in this situation and are worried about paying your mortgage, you are not alone. And you have options.
Your first step should be to consider mortgage forbearance.
Regulators Fannie Mae and Freddie Mac, along with individual lenders, are urging homeowners to take advantage of forbearance agreements that can suspend mortgage payments for up to 12 months.
Forbearance can free up your budget for day-to-day necessities and anticipate mortgage payments until your paychecks start coming in again.
This is how it works.
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What is a forbearance on a mortgage?
A “mortgage forbearance agreement” is an agreement you can make with your lender when you expect to be in arrears or to miss them altogether.
Forbearance means that your mortgage lender temporarily agrees to do one of two things:
- Reduce your monthly mortgage payments, Where
- Completely suspend your payments for up to 12 months
The lender also promises not to foreclose on your mortgage or house. And you agree to get back on track with payments after the forbearance period is over.
Forbearance periods typically range from a few weeks to 12 months or more, depending on what the lender agrees.
Tolerance doesn’t erase your debt
It is very important to note that forbearance does not eliminate your mortgage debt. It just postpones your payments – and you’ll still have to pay them back in full (plus interest) when that grace period has passed.
“A forbearance agreement does not erase or cancel any debt owed to the lender. And that does not prevent the accumulation of interest ”, explains the lawyer David reischer.
“During the forbearance period, principal payments are simply deferred. Any unpaid interest that accumulates will be added to the principal balance. This increases the total amount you owe.
“Any unpaid interest that accumulates [during the forbearance period] will be added to the capital balance. This increases the total amount you owe. –David Reischer, lawyer
Joseph J. Zoppi is a managing partner with Templar Real Estate Enterprises. He notes that after the end of the forbearance period, you must resume payment in full. In addition, you will need to pay an additional amount to be up to date based on your missed or reduced payments.
“These payments will include all principal, interest, taxes, insurance and other charges due,” Zoppi said.
How forbearance affects your mortgage repayment plan
Once your forbearance period has expired, there are a few options to start paying off your lender.
- Repay the entire amount at once
- Increase your monthly payment
- Restructure your mortgage
“You can pay a lump sum of what you owed during the forbearance period,” Zoppi explains.
“This can be done, for example, by taking out a short-term loan from a lender or family member, using a home equity line of credit, or liquidating investments. “
Or, you can pay extra on your monthly mortgage payments until the skipped amount is fully paid off.
“Alternatively, you can request a loan modificationSuggests Reischer.
“Here, the lender can agree to extend the term of your loan, lower your interest rate, or convert a variable rate to a fixed rate.”
Who should use mortgage forbearance?
Forbearance is a good option if you’ve lost a lot of money to COVID-19 or if you’re having other difficulties that prevent you from making full mortgage payments on time. But it’s not for everyone.
“This is beneficial for those who expect to resolve their financial problems in a relatively short timeframe. It’s not for those who have long-term problems paying their mortgage or have had a loan modification, ”Zoppi says.
Withholding is “beneficial for those who expect to resolve their financial problems in a relatively short period of time.” –Joseph J. Zoppi, Managing Partner, Templar Real Estate Enterprises
Lawyer and real estate agent Bruce ailion agrees.
“Let’s say you’re put on leave from your employer for three months. You cannot make your mortgage payments at this time. But your job will be there when the COVID-19 crisis is over, ”says Ailion.
“In this scenario, you are a good candidate for abstention.”
If you’ve experienced a permanent layoff or reduced income, forbearance is probably not the best option.
Suppose, on the other hand, you lose your job or your small business goes bankrupt. In this case, “forbearance may not be helpful as you may not be able to make payments after the forbearance period is over.”
What else can you do if you can’t make your mortgage payment
If forbearance isn’t the right option for you, there are other ways to reduce your mortgage payments or restructure your loan. Here are some examples :
- Refinance your mortgage. With interest rates remaining low, you may be able to reset your loan and potentially pay less per month or pay off your loan sooner. “In addition, a withdrawal refi can allow you to pay off other debts, reducing your expenses and your overall debt. This could make abstention unnecessary, ”says Reischer
- Rent out your house. Rent an empty bedroom or living space for extra money. Or move out completely and rent the entire house if the rental income exceeds your mortgage payment
- Discover a main discount. Some government programs may allow you to restructure your mortgage using a lower value for your home. “This can result in lower monthly payments,” Zoppi adds
- Paying off your VA loan. Got a VA home loan that you’ve fallen behind on? “In some circumstances, you can have your home bought and maintained by the VA, which can provide more flexibility in payments,” says Zoppi.
There are also other more extreme options. But this is a last resort, because it is about selling or confiscating your home in order to pay off your debt.
- Consider a short sale. If your mortgage is underwater, your lender may agree to accept less than you owe if you sell your home and insufficient proceeds.
- Find a deed in lieu of foreclosure. Here, you give your house (technically the deed) to your lender in exchange for being exempt from what you owe on the loan.
There are probably ways to restructure your mortgage to keep your home and stay up to date on your loan.
This is especially true now, when lenders are ready to work with their clients and find solutions to COVID-19 issues.
Take the first step to mortgage relief
Are you feeling financial pressure? Contact your mortgage agent as soon as possible and find out which eligible programs and opportunities are best for you.
” Do not be afraid. Call your lender and explain your situation. Ask about abstaining or one of those other options, ”advises Reischer.
The rules are flexible right now, so there’s a good chance you can find a solution to ease your current financial worries.
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