If you've lost your job, been forced to take a pay cut, or are experiencing other financial hardship due to the economic impact of the Coronoavirus, you may be tempted to skip a mortgage payment after seeing recent headlines about the CARES Act and loan forbearance. Skipping a payment without discussing it with your servicer will wreak havoc on your credit score and could have other unintended consequences. Loan forbearance is not loan forgiveness and while you may have relief options available to you, none of the options are automatic and all options will impact your ability to purchase or refinance in the next year. Each servicer is handling repayment differently and it's important to be keenly aware of your options as well as their long-term impact. If you are seeking financial relief, take the following steps before you make a decision.
1. Find Out Who Services Your Loan
Start by finding out who owns and services your mortgage loan. Loans are often sold once the home closes (and can be sold again down the road), so your current servicer may be different than the one you remember closing with. Call the number on your monthly statement or check your bank records if you've gone paperless or use auto-pay.
2. Discover What Your Loan Servicer's Options Are
It's important to know what options your servicer offers and their long-term consequences. In some instances, the missed payments are tacked on to the end of the amortization schedule, and in other cases all of the missed payments will come due a few short months after you're approved (e.g. skip 3 payments but owe it all on the 4th payment). Make sure that you ask questions until you fully understand what each option entails now AND down the road. In most cases, temporary relief from monthly payments means paying more over the life of your loan and some options, like loan modification or forbearance, could impact your credit and your ability to refinance. Be sure to ask how they are reporting things to the credit agencies for each option so you understand the impact it could have on your credit score. If any favorable promises are made, be sure to get them in writing.
3. Take Time to Assess Your Situation
Do you really need to apply for mortgage relief or do you have other options available to you? Look for other monthly payments you can reduce, or consider tapping into your savings account or other liquid assets. If you are able to secure a lower interest rate, refinancing to reduce your monthly payment may be a better option than forbearance.Brainstorming all the options available to your unique situation will relieve the pressure of feeling backed into a corner and making a rash decision that could haunt you later.
Local lender Darik Tolnay advises, œWhile forbearance might be the only option for some, it should not be pursued unless absolutely necessary. Know the facts before you act. Taking the time to discover and think through every option available to you will help you to make the most rational and informed decision. Your future self will thank you.
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