Mortgages can be a critical topic for most homeowners, especially when you experience occasional financial issues. A common concern of payers is that they won’t have the ability to make their next mortgage payment, giving them more financial burdens to face.
If you’re concerned about this, working with a lender to fix up a forbearance agreement could be a helpful option. When you do this, you’ll get to dodge late penalties, risking foreclosure, and more.
Once you have a federally-backed mortgage, you’ll get to take advantage of forbearance protection, which is under the CARES Act that the Biden administration has recently extended. With this, you can be qualified for up to 15 months of forbearance to request a payment pause.
Because of these new policies and loan changes, speaking to a lender about home loans and mortgage rates is recommended, especially if you’re worried about your financial health.
Perhaps you’re here because you’re not entirely sure how a mortgage forbearance agreement can help you. If so, keep reading; here’s everything you need to know about this mortgage agreement.
What is a Mortgage Forbearance Agreement?
A mortgage forbearance agreement is a settlement arranged between you and your lender so they can provide you with temporary relief from paying your mortgage in a specific timeframe. This can be done by either lowering or pausing your mortgage payments.
Borrowers often request forbearance when they experience financial changes which impact their ability to pay, such as a job loss, illness, or natural disaster. However, having an approved forbearance doesn’t mean you’re off the hook for missed or reduced payments — you still owe the amount you missed when your forbearance period ends.
Here are common terms your lender will outline for your forbearance:
- The timeframe of your forbearance;
- How you will repay missed payments and late fees;
- Amount of payment required when the forbearance ends;
- Forbearance reports to credit agencies;
- Interest rates on missed payments;
How Does Mortgage Forbearance Work?
The type of forbearance agreement you get will rely on the kind of loan you have, your current mortgage rates, and your lender’s policies. Once everything is in place, your mortgage payments will be lowered or temporarily suspended for the agreed-upon timeline.
When your mortgage forbearance period is over, your regular payment schedule will return, including making up for missed payments.
Which should I apply for? Deferment or Forbearance?
Mortgage deferment and forbearance allow you to cease making monthly payments momentarily — however, the difference between the two lies in what happens when the suspension ends.
When you get a deferment, your lender will add the amount deferred to the end of your loan term. This means that you won’t need to worry about making extra payments and your monthly payments compared to forbearance.
Yet again, concerning what option you should go with, it solely depends on your financial situation. Can you make catch-up payments? How soon? If you think you can improve your finances quickly, forbearance is a better option. But if you don’t mind extending your loan term for another 12 months, then deferment is your best bet.
The Bottom Line: Depending On Your Financial Health, Forbearance Can Provide A Breather From Your Mortgage Payments
Now that you have a general idea of how a mortgage forbearance agreement works, it’s best to speak to your home loan lender to determine if this is the best option for you to receive temporary relief from your mortgage payments.
How Can YOUnited Lending Help You?
Mortgage rates and home loans can be incredibly daunting to handle. Fortunately, YOUnited Lending, LLC, has made things easier for you.
We specialize in residential mortgages in South Carolina, backed by a team of highly-skilled specialists who have what it takes to get your mortgage through underwriting quickly and efficiently, minus the hassle. Check out our loan programs and apply for one today!
