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Living in “unprecedented” times, the world is full of more questions than answers. As struggling families try to cope with the effects of the pandemic and a stunted economic period, many are afraid of being left behind with mortgage payments and other costs adding up. The government has implemented programs such as the CARES Act, aimed at homeowners facing temporary hardship, but who is this program meant to support and could it help you? 

Let’s break it all down by exploring what mortgage forbearance is, and how it can help some homeowners. We’ll take a look at CARES Act forbearance program and discuss some of the pros and cons of mortgage forbearance, as well as some other options to consider.

What is Forbearance?

Forbearance is a repayment relief your creditor or lender can allow. In forbearance, you may have temporarily suspended or reduced mortgage payments during a set period of time. Forbearance does not eliminate what you owe, either in your total mortgage principal or in the period where payments are suspended. Any suspended or reduced payments within the forbearance period will need to be paid back in the future. 

Mortgage forbearance can be a useful option for homeowners who need a little time to deal with financial hardship or are recovering from a financial setback such as job loss, short term disability, or illness.

If you can afford to keep making payments on your mortgage, you should continue to do so. This helps you chip away at the principal amount without extending your loan terms or accruing additional interest.

2020 CARES Act Forbearance

The CARES Act was signed by US Congress in March of 2020. Along with other economic aid and stimulus packages, the CARES Act put a special program in place to allow homeowners to use forbearance for short term financial relief.

The CARES Act forbearance program specifies that if you have a mortgage loan backed by the US government (VA, USDA, FHA, Fannie Mae, Freddie Mac) you may temporarily suspend payments if you have experienced financial hardship due to the COVID-19 pandemic. Other loan types or mortgages from private lenders may also have forbearance options, but the specific conditions and terms for those agreements may change.

How CARES Act Forbearance Works

To apply for forbearance, you’ll need to work with your loan servicer to submit a request for forbearance which will last up to 180 days. After that period is up, you may request an extension for up to 180 days. Multiple extensions may be allowed if the CARES Act is renewed by Congress. Once the program expires, you will no longer be able to extend your forbearance period and will have to resume making payments on your mortgage.

The CARES Act states that you don’t need to provide proof or formal documentation to substantiate your claim of financial hardship in order to qualify for forbearance under this program. Also, no additional fees or interest charges will be due for the suspended payments during forbearance, but interest will still accrue on the loan principal.

To make up for the missed payments, your loan servicer may require you to have higher payments when forbearance is over. Talk with your servicer to see if you can add the payments to the end of the loan term, extend the loan term, or come up with another repayment plan that suits your needs.

Pros and Cons of Forbearance

Forbearance can be a useful option for some homeowners, but it’s only temporary relief. Homeowners with longstanding debts or financial troubles may not benefit from forbearance in the long run. Let’s consider the pros and cons of forbearance to see if it’s a good option for you.

Pros of Mortgage Forbearance

Forbearance allows you to stop making payments on your mortgage for the short term, so you can use those funds to protect and provide for your family. This is a great option if you lost your job due to the pandemic, can’t work due to illness, or some other situation directly caused by the pandemic.

The CARES Act states your loan servicer cannot require the missed payments to be repaid in a lump sum once the forbearance period is over. This is good news for many homeowners who may not have recouped financial losses before the program expires. However, the missed payments are still owed, and you’ll need to work out a plan with your loan servicer in order to continue with your mortgage payments and make up for the ones you skipped.

Cons of Mortgage Forbearance

Although you won’t have mortgage payments due during the forbearance period, your suspended payments will continue to collect interest, which will be added to your loan amount to repay in the future.

Forbearance during the pandemic is meant to provide relief to families experiencing temporary hardship due to the pandemic. If your financial situation was difficult before the pandemic began, or you won’t have a steady income after the CARES Act expires, forbearance alone may not be enough to help you keep your home. 

Alternatives to Forbearance

If you can’t afford to make your mortgage payments after forbearance ends, you may need to consider other options, such as discussing repayment options with your lender or selling your home.

When you sell your home, you can pay off the mortgage debt and move on in a new home you can more comfortably afford. Selling now allows you to avoid foreclosure or other consequences from missed payments. 

To sell your home fast, work with a reputable real estate investor. They will assess your home’s condition and make you a fair cash offer based on its market value. Best of all, they prefer to close on home sales quickly, so you can sell your home in as few as five days and be better equipped to handle whatever life has in store for you next.

If you’re considering drastic steps to keep your home, maybe it’d be better to sell your home and move on in something you can comfortably afford. For a hassle-free sale that works for your situation, call Renewed Homes.

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