I have had a few people ask about forbearance and whether they should stop paying their mortgages during the Covid-19 isolation, under the CARES Act. In a nutshell, NO, you should not do so unless you truly cannot pay it and have established a forbearance with your lending institution(s).
Let’s first define forbearance: it is when a lender allows the borrower to pause or reduce mortgage payments for a limited time period. Here are some important facts to keep in mind about forbearance that may not be very clear at this time:
1. Forbearance is not a forgiveness of any missed loan payments.
2. Your loan balance is not erased when you utilize a forbearance period, and you will have to pay it back in the future
3. If your loan(s) is federally backed (FHA, VA, Fannie Mae, Freddie Mac and USDA loans), you CAN utilize temporary forbearance to suspend your payments if your ability to pay is affected by the Coronavirus. If you have a private or non-government backed loan speak with your lender to see if they have temporary forbearance programs in place – many do.
4. If you are experiencing financial difficulties as a result of the Coronavirus you have a right (for federally backed loans) to request forbearance for 180 days, and then an additional right to extend it for another 180 days…BUT you must contact your lender to make the request.
5. Upon being granted forbearance, you will not be charged any additional fees, BUT interest will still accrue on your missed payments.
6. Be aware of scammers who take advantage of borrowers at this time, and do not respond to any emails that request your loan information, even if they promise you forbearance approval – never share any personal or loan information via email.
7. Credit scores will not be affected in a derogatory manner due to forbearance. *** IMPORTANT: I just learned that people who have qualified for forbearance and are in the process ARE seeing “Missed” mortgage payments reporting on their credit reports, so it does not look like your credit will not be affected. Take this into consideration when contemplating a forbearance.
Again, it is extremely important that you understand you need to establish the forbearance with your lender, do NOT simply stop making payments. If you are able to make the payments, it is best to do so. For more information go to consumerfinance.gov/coronavirus or contact your non-government backed lender.