We’ve all heard the news articles about lenders allowing forbearance or deferment of federally-backed loans. You may be wondering – what exactly does that mean for homeowners and their monthly mortgage payments? Here, we break down the payment options and what they could mean for you and your family.
Let’s get our definitions straight.
First, let’s define what forbearance means – “refraining from the enforcement of something (such as a debt, right, or obligation) that is due.” In layman’s terms, it means that your lender(s) would temporarily pause or lower your payments (usually up to one year) – however, these “paused” mortgage payments do not disappear and will be added on to the end of your loan term.
What about deferment? You know them well – Fannie Mae and Freddie Mac. The two recently announced that they’d be rolling out a loan payment deferral option. This would allow borrowers to defer payments for a couple of months. Similar to loan forbearance, the missed payments will still have to be made up.
Another option for borrowers would be a loan modification – which, we’d like to point out, is different from refinancing your mortgage. While refinancing entails replacing your loan with a new mortgage, loan modification changes the terms of your existing loan.
If you’re currently delinquent (or otherwise likely to be facing delinquency in the future) on your loans, this may be the best option for you. While the modification likely means you’ll be extending the length of your term, it also means you could be lowering your interest rate and potentially lower monthly mortgage payments. PRO TIP: Lenders do not want to foreclose as this process is incredibly costly. Many are willing to talk through the loan modification process in lieu of foreclosing on your home.
In Boston, 12 banks have agreed to defer mortgage payments for at least three months. These banks include Bank of America, Boston Private, Cambridge Trust, Century Bank, Citizens, City of Boston Credit Union, Dedham Savings, Eastern Bank, Mortgage Network, Inc., PrimeLending, Salem Five and Santander. Additionally, there has been extended property tax due dates, the city has halted eviction proceedings and it also created a $3 million rental relief fund for its residents.
How do you know if these plans are not right for you?
Are you still receiving your regular income? You may live with a spouse, or you may be making mortgage payments on your own. Either way, it may be too soon to cut back on your monthly payments if you’re still receiving an income. Inevitably, most of us are spending much less being cooped inside, and with less disposable income this may actually be the time to continue making payments.
Did you get in touch with your bank? If you aren’t able to get through to your bank during this time, you’re not alone. Many borrowers are finding it nearly impossible to get a hold of their banks. This is resulting in the halting of payments without actually ever setting up a plan. This could be disastrous for your credit record, and we strongly advise against it.
How much time is left on your loan? If you only have a short term left, it may not even be worth it to consider these plans. We know – the idea of no mortgage payments sounds great, but does increasing your monthly payments after the three month break actually make sense in the long run? Hm, maybe not.
The bottom line.
Remember – There is no one-size-fits-all game plan here, and everyone’s situation is different. There are tons of resources out there (stay tuned for our next post with a bunch of great links to help guide you through this process) and lots of people ready to help. Ask questions, take notes, consider what’s best for your situation and, most importantly, stay safe. As always, email us with any questions.