Is your mortgage forbearance ending soon? Don't panic. You have options!
By Tracy L. Hirsch
If you’re worried about how you’re going to pay your mortgage in 2021, you have multiple possibilities. Let’s explore them together.
In the spring of 2020, many people were out of a job or their hours had been cut due to the pandemic, and they were struggling financially. Locally, thousands of families in Kentucky struggled to pay their bills, including their mortgage.
As a result, many mortgage companies (that are backed by the federal government) offered forbearance plans under the CARES Act.
These plans allowed millions of homeowners to hit the ‘pause’ button on their mortgage payments. It wasn’t an offer to write off those payments, but simply a way to defer those payments until a later date.
While those forbearance plans provided much needed relief, many of them are now ending, and homeowners have to pay back several months’ worth of house payments. If you’re one of those homeowners, what do you do now?
Here are four options to keep you in your home:
You have options when it comes to your forbearance plan.
1.) Exit your forbearance plan. If you are now able to resume your mortgage payments, you can end your forbearance plan early. It’s important to remember that forbearance is not a type of loan forgiveness, so you need to have a financial strategy in place for paying back all of your past-due mortgage payments.
When you exit your forbearance plan, you’ll have to start paying your regular monthly mortgage payment plus the mortgage payments from the past several months. You can repay your past-due payments in a lump sum if you are able, but it is not required.
It’s a good idea to pay it all back at once if it’s financially feasible, but if not, you have other options.
You could make payments on your deferred mortgage amount, where you pay your regular monthly mortgage, and also a set amount over a three to twelve month period.
For example, if your monthly mortgage is $1,150, and you owe $6,900 from your forbearance plan, you can pay an additional $575 each month for twelve months to get it paid off.
Remember, the $575 would be in addition to your regular mortgage payment, so you would have to pay $1,725 per month for the next year.
2.) Look into refinancing or loan modification. Another option is to lengthen your mortgage loan term or do a loan modification to see if you can get a lower interest rate. Mortgage rates have been at record lows this past year, and it looks like they will stay that way for the foreseeable future.
If you can get a lower rate, that could make your monthly mortgage payment a lot lower. If your current payment is manageable, but you just need more time, you can request to lengthen your loan term to give you a cushion in terms of paying everything back.
Be sure to ask your loan servicer about these options if you feel like they would be a good fit for you.
3.) Request a forbearance extension. The majority of homeowners who signed up for mortgage relief still have active forbearance plans, as they were given six months, and then an additional six-month extension was provided by the federal government in September.
However, if you didn’t sign up for forbearance until July 15th, your initial six-month plan will end on January 15th. You can request an extension if you need it (up to six months), for a total forbearance period of 12-months. How do you do that?
Contact your mortgage servicer at least a month (ideally sooner) before your forbearance plan ends to let them know that you need an extension. They should be able to provide you with the paperwork that you need to get that filed. Just be aware that you’ll most likely experience delays and lags in communication.
Loan servicing organizations are understaffed and have a high call volume, so that could mean long wait times on the phone, and dealing with multiple customer service representatives. It’s important to be persistent though because if you need an extension, the paperwork has to be completed before your initial six-month forbearance plan ends.
After reading about these options, you may be thinking, “What happens if I still can’t afford my mortgage payments after a forbearance extension or even with a loan modification?” That’s a good question to ask, as it’s vital to have a plan in place.
This brings us to our final option that has multiple different avenues:
4.) Opt for short sale, deed in lieu of foreclosure, or Chapter 13 bankruptcy.
If you absolutely can’t afford to keep your home, you could sell your home through a short sale or a deed in lieu of foreclosure. It’s best to do what you can to avoid foreclosure, and another way to do that is by filing for a Chapter 13 bankruptcy.
In a Chapter 13, you could pay back your mortgage arrearages over a five-year period, which would actually allow you to keep your home instead of selling it!
While bankruptcy might seem like an undesirable option, it can actually help you with more than just your mortgage. In addition to being able to keep your home, a bankruptcy could help you protect your paycheck from being garnished due to unpaid debt.
You could include any medical bills from hospital and doctor offices in your bankruptcy, as well as any credit card debt that may have accumulated due to being furloughed during the pandemic.
Furthermore, you could repay a car loan through your Chapter 13 plan, as well as tax liabilities and other debts. Due to the “automatic stay,” creditors can’t threaten to take any assets that are included in your bankruptcy petition (home, car, paycheck, etc.) once you officially file it.
If you want to know whether a short sale, a deed in lieu of foreclosure, or a Chapter 13 bankruptcy is the best option for you, I offer free phone consultations to discuss those options. This has been a stressful year for all of us, and I’m here to help.
You can text or call me directly at (502) 435-2593 to discuss the best way for you to obtain financial freedom. Here’s to a hopeful 2021!
All the best,
Tracy L. Hirsch
Louisville Bankruptcy Lawyer
Ready for your free consultation? Text or call me at (502) 435-2593!