What Happens When Mortgage Forbearance Ends

The coronavirus pandemic brought forth many challenges, among them meeting mortgage payments. Fortunately for many borrowers, mortgage relief options – like forbearance – were made available. Unfortunately, forbearance doesn’t last forever. In this blog, we’ll take a look at what happens when mortgage forbearance comes to an end.

What is Mortgage Forbearance?

Forbearance is when your lender or mortgage servicer allows you to lower or pause your mortgage payments for a temporary period. It’s typically offered when a borrower faces difficulty meeting their repayment obligations. Essentially, forbearance is an option to keep your home from foreclosure.

However, forbearance isn’t forgiveness. You’ll have to repay any missed or reduced payments in the future. It’s also temporary, normally lasting up to a year. And the types of forbearance vary with different types of loans. 

What Happens After the Forbearance Period?

Your individual circumstances and forbearance agreement will dictate exactly what’ll happen when the forbearance period ends. If your forbearance falls under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the borrower can’t be charged penalties, interest, or fees that wouldn’t normally have accrued if everything was paid on time. 

After forbearance, you’ll need to make up any missed or lowered payments – and there are typically a few different ways to do that.

Some Common Post-Forbearance Repayment Scenarios

Reinstatement

This is where you pay a lump sum that covers the total amount your payments were reduced by during forbearance – including interest and fees – at the end of the forbearance period. Then, you simply carry on making loan payments as you did before forbearance – almost as if it never happened.

Repayment plan

This is where the amount that your payments were reduced by during the forbearance period, including interest and fees, is added to your regular mortgage payments – so your payments will be higher than they were before forbearance for a while. Usually, this is no longer than 12 months.

The number of repayment installments is negotiable and often depends on your ability to make payments. Increasing the number of repayments makes each one lower – but results in greater interest paid over the repayment term.

Mortgage modification

This is where your mortgage is restructured to incorporate the total amount that your payments were reduced by. The amount you were excused from paying during forbearance is added to your loan and factored into the new payment structure. This can extend your mortgage term by many months and add significantly to the total amount of interest you’ll pay over the life of the loan.

Payment deferral

Available for some mortgages – like Fannie Mae and Freddie Mac loans – this is where any missed payments are simply tacked on at the end of the mortgage term. After the forbearance period, you return to paying your regular mortgage payments – and additional interest or late fees do not accrue.

As you can see, there are several different ways to pay off any outstanding sums. Specifically, they will vary with different loan types – but chances are you’ll have a few options to choose from. And depending on your situation, one might suit you more than the others.

It’s also important to take into account any interest that continues to accrue on your mortgage during forbearance. UW Funding can help with that: we’ll take a look at your specific needs and help navigate to the best option for you. Just reach out today – we’d love to help.