Life has its share of ups and downs. During the down times, issues like the loss of a job, injury, or illness can directly impact your ability to keep up with your mortgage payments. Fortunately, in many cases, your mortgage provider can work with you to put your payments on pause—or at least lessen them—while you’re dealing with a short-term hardship.

What is Mortgage Forbearance?

It’s important to first define forbearance. Mortgage forbearance is an agreement between you and your lender that allows you to make lower payments or suspend payment on a temporary basis until you’re in a better place financially. Not only does it give you time to handle a difficult situation without the additional worry of making your mortgage on time, but it also allows you to stay in your home. And it won’t affect your credit score in the same way a foreclosure does, as long as you were current on your mortgage prior to the established forbearance period.

The specifics depend on your particular lender and the arrangement you decide on, but the terms will likely address issues including your payment amount during forbearance, how long the relief will last, the method and time frame for repayment, and whether or not the lender will report your forbearance status to credit bureaus.

Of course, it’s important to emphasize that forbearance should never be considered a “free ride”—you’re expected to make up for the missed payments once you get back on your feet. It should be noted that any interest that your loan accrues under normal circumstances will continue to do so throughout your relief program as well. In addition, you’ll still receive monthly statements from your lender. 

Types of Loan Forbearance

There are several different types of mortgage relief assistance available, depending on your specific loan, but they usually fall into two buckets: a complete deferment of payments, or a significantly reduced amount every month during a set time frame (typically no longer than one year). 

Your payback plan will vary by your lender as well, but the most common option is a repayment schedule that staggers your skipped payments over an established period of time that you agree upon with your mortgage provider. For example, with Fannie Mae, Freddie Mac, FHA, or HUD loans, you can opt to pay a slightly higher monthly bill when you exit forbearance.

It’s not as common, but reinstatement allows you to pay everything back at the same time in a lump sum if you’re able—this is often referred to as a balloon payment. The advantage here is that you take care of the installments you missed in one fell swoop and can quickly get back on track with your regular mortgage payments without having to worry about it.

Finally, you might be able to append the total you owe onto the end of your mortgage term. One benefit of this route is that it can postpone the need to pay a significant amount of money until several years down the road. On the other hand, if you’re uncertain about your potential circumstances that far into the future, it may not be the best choice. 

In some cases, you may need more time to improve your financial situation than your initial relief program provides. If so, you can often request an extension from your lender. The length varies by your lender, but if you have a federal or government-sponsored enterprise (GSE) mortgage, you can extend your forbearance for up to 180 days.

How Hometap Handles Forbearance

At Hometap, we are able to invest with homeowners in forbearance on a mortgage loan. Some homeowners even use Hometap to exit forbearance by accessing their equity to compensate for the missed payments.

No matter what type of mortgage relief assistance you receive, there are some important things to keep in mind:

  • Make sure to keep a copy of any and all documentation you receive from your lender. 
  • Keep an eye on your monthly statements to make sure the payment amount, if any, is correct.

If you’re currently in loan forbearance, a Home Equity Investment can help you get closer to reaching your financial goals in a couple different ways, whether it’s by getting you the cash you need to pay off outstanding debt and resume your mortgage payments, or using that money toward the payments themselves. 

Take our five-minute quiz to see if Hometap might be a good fit for you.

 

DISCLAIMER

The opinions expressed in this post are for informational purposes only. To determine the best financing for your personal circumstances and goals, consult with a licensed advisor.