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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Mortgage Forbearance
If you don’t know what is mortgage forbearance. Then you are at the right place to know about it. Mortgage forbearance is a word that is so new to us that we are going to be hearing it for months.
If not, years to come because of this unfortunate event of Coronavirus. In this post, we will understand what mortgage forbearance is and how it may affect you in the coming future.
What Is CARES Act?
On March 27th, 2020, President Trump signed into law the CARES Act, which in layman’s term is this big federal bailout that you might have heard about on the news that is going to help everybody possible that has been impacted by this pandemic.
CARES stands for “Coronavirus Aid, Relief, and Economics Security Act.
In addition to the unemployment benefit that this CARES Act gives, it also makes it possible for homeowners under certain circumstances not to have to make their mortgage payments for up to 180 days and possibly another 180 days after that.
What Is Mortgage Forbearance?
Mortgage forbearance is a temporary relief of your mortgage payments by pausing your payments for a specific period or pausing certain portions of your payments.
In the case of the CARES Act, the period is 180 days and could be extended by more than 180 days.
In normal situations, mortgage forbearance for borrowers could be in case of some natural disasters like hurricanes and tornados.
Normally it is a certain segment of the country that is affected by such disasters that might get temporary authorization to go into mortgage forbearance.
Here we have the entire country authorized for mortgage forbearance due to the hardship.
How Does Mortgage Forbearance Work?
here are two main ways in which you can do mortgage forbearance. In the first option, you can completely stop making mortgage payments for a predetermined amount of time. The other option is to make partial payments.
In the complete mortgage forbearance option, when the time frame is up, you would have to come up with a lump sum of the amount that is due to your lender in some cases all at once.
When you take the option of reduced or partial payments, you are still going to owe your lender every single month, just like you were in a normal situation, it is only going to be less.
Keep in mind even in partial payments, when the forbearance period is up, you are still going to owe your lender a sum of money, which is the difference between the amount you owed and what you were able to pay.
In some cases, you may not owe all of that interest that has added up over the time that you were in mortgage forbearance. Some lenders may choose to add that value to the end of the loan and pay it off over an extended period.
Should You Request Forbearance From Your Lender?
If you are planning to request mortgage forbearance from your lender, here is what you need to know. According to the CARES Act, the law currently does not require you to prove any hardship to get a mortgage forbearance.
According to some US mortgage news resources, authorities are expecting homeowners to operate on an honor system.
This means if you don’t need a mortgage forbearance because of loss of a job or significant reduction in income, you could be committing unethical mortgage practice.
Please ensure you are requesting the mortgage forbearance from your lender only if you need it.
Conclusion
If you are asking for mortgage forbearance from the bank, you may only want to accept it if they can add the payment and the interest at the back of your loan.
Please make sure you understand the terms of your mortgage forbearance and only go for it if it is possible and affordable for you when the forbearance period is up when it’s the time to pay the lump sum amount.
