Why You Should Think Twice About Delaying Your Mortgage Payments

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The recently passed Coronavirus Aid, Relief and Economy act, or CARES act, allows impacted homeowners with federally backed loans to delay paying their mortgage and get a break on accumulating interest for up to a year.

According to the Consumer Financial Protection Bureau; to be eligible for protections under the CARES Act your mortgage must be federally owned or otherwise backed by one of the federal agencies and entities listed below.

If you don’t know who owns or backs your mortgage, you can call your servicer. The servicer has an obligation to provide you, to the best of its knowledge, the name, address, and telephone number of who owns your loan.

Nearly half of the nations mortgages are owned or backed by Fannie Mae or Freddie Mac.

You can look up on online to find out whether your mortgage is owned or backed by Fannie or Freddie Mac, click on these links to find out:

Frannie Mae Loan Lookup

Freddie Mac Loan Lookup

What if your loan is not backed by the federal government? Most financial institutions are participating within the basic guidelines of the CARES act, however you will need to call them to find out what they are offering.

What is Mortgage Forbearance?

According to Fannie Mae’s website know your options ; you and your mortgage company agree to temporarily suspend or reduce your monthly mortgage payments for a specific period of time. This option lets you deal with your short-term financial problems by giving you time to get back on your feet and bring your mortgage current.

What is important to keep in mind is that your bank still expects to get paid at the end of the Forbearance, it does not automatically get put on the back of the loan.

“That’s the default setting,” said Andrea Bopp Stark, a housing attorney at the National Consumer Law Center. “Some servicers and lenders will require borrowers to pay in full at the end of the forbearance period. But if borrowers can’t pay one month now, it is hard to see how they might pay four months worth of their mortgage payments at once later.”

“The forbearance agreement is just putting off payment until a later day,” Stark said. “It is the lender saying, We give you temporary reprieve and at the end, you pay us.”

Re-Payment Options

-Pay the deferred portion in one lump sum when the Forbearance period is over, for example let’s say you defer your mortgage payments for 3 months, on the 4th month you will now need to pay all 4 months.

-Some mortgage companies are allowing re-payment plans to pay the deferred months, each bank is going to handle the terms differently and is hard to get a definitive answer on what this might look like from your lender.

-Loan Modification, in which the loan company might add the deferred amount to the balance, increase the length of your loan or reduce the interest rate.

Another important note to consider is property taxes, common charges, etc… If you pay these directly they will not be part of the plan.

Will this affect my credit score?

Under normal circumstances payments skipped during a mortgage forbearance will most often be reported as delinquent missed payments. The CARES act offers relief and payments skipped are not supposed to be reported negatively to the credit bureaus by lenders.

I am not so sure about this and I personally feel this will ultimately have a negative impact on your credit.

Important Government Resources

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Sources

https://www.knowyouroptions.com/covid19assistance
http://www.freddiemac.com/about/covid-19.html
https://www.consumerfinance.gov/about-us/blog/guide-coronavirus-mortgage-relief-options/
https://www.cnn.com/2020/04/13/success/mortgage-forbearance-coronavirus/index.html