You Might Be Able to Skip Mortgage Payments Right Now. Here Are 4 Questions to Ask Before You Do

published Feb 22, 2021
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If you have a mortgage, you’ve probably heard chatter about the forbearance plans available to help homeowners weather financial difficulties during the pandemic. Your lender may have sent you something in the mail about forbearance options or have information about forbearance on its website.

But what exactly is forbearance — and should you take your lender up on it? Forbearance terms vary by lender, but in general, they allow financially distressed homeowners to avoid foreclosure by letting them press pause on their monthly mortgage payments for a set period of time. (As part of COVID-19 relief efforts, the Biden administration just announced that homeowners can now keep their payments on pause for up to 18 months.)

Forbearance isn’t loan forgiveness; the money is paid back eventually. 

“Forbearance should be used as a safety net by a homeowner who believes they are facing foreclosure,” says Andrina Valdes, chief operating officer of Cornerstone Home Lending, Inc. It’s important to meet with your loan officer first to determine if that’s really your situation, Valdes says. 

Here, four questions you should ask your lender if you’re thinking about taking them up on a forbearance offer.

When and how will my repayments be due?

If you do opt for forbearance, it’s imperative you become well-acquainted with the terms of the plan. While the money has to be paid back at some point, lenders have a slate of repayment options and it’s crucial to know how and when you’ll need to make up for your skipped payments, particularly whether a forbearance plan will tack on extra interest.

Some plans, Valdes says, may require you to pay back what you owe in a lump sum following the forbearance period. But owing several months’ worth of mortgage payments at once could put a lot of financial pressure on you.

Your lender may also allow you to pay extra on your regular payments until the skipped payments are made up, says Tony Grech, a senior mortgage loan originator with Luxury Mortgage Corp in Michigan. Or, a lender can potentially defer your missed payments to the end of the loan. 

How will forbearance affect my credit?

Mortgage experts recommend you ask your lender how your payments will be reported to the credit bureaus while you’re in forbearance.

“From a credit standpoint, your lender should report your loan as current but in forbearance,” Grech says. “If they report it properly then it should not drag down your credit score.”

But here’s where things could get sticky: If you enter into a forbearance plan and you’re already behind on your mortgage by 30 or 60 days, it could continue to be reported as late every month that you’re in forbearance. 

Will I still be able to refinance in the future?

Interest rates are hovering at record lows, which means you may want to refinance in the future. How much will a forbearance affect your ability to do so? Not much, Valdes says. A recent update provided by the Federal Housing Finance Agency now allows homeowners to refinance after a period of forbearance. 

“All you have to do is make three mortgage payments in a row, and then you’ll be eligible,” Valdes says. “Before this update was made, you had to wait a whole year of making mortgage repayments.”

What are my other options?

If you’re on the fence about whether forbearance is the right option for you, there are a few other alternatives, says Andy Taylor, the general manager of Credit Karma Home. Because home equity levels remain at record highs, homeowners can consider a cash-out refinance that would allow you to cash out the equity you’ve built in your home, while locking in a lower interest rate.

Or, Taylor says, a home equity line of credit (or HELOC) allows you to borrow money with a revolving line of credit against the equity of your home. You can secure a HELOC now, even if you don’t plan to use it for a little while. Yet another alternative? If you can no longer afford your payment as is, you might be able to modify your loan, Grech says. For example, this could mean stretching your loan out from 30 years to 40 years, which could make your monthly payments a bit more affordable.