Understanding Mortgage Forbearance and Your Options When It Ends

Mortgage forbearance is a temporary relief measure that allows homeowners to pause or reduce their mortgage payments during times of financial hardship. However, this relief is not indefinite, and it comes with an end date. When the forbearance period concludes, homeowners are expected to catch up on any missed payments. In this blog, we will explore what happens when mortgage forbearance ends and the options available to homeowners. If you need assistance with your mortgage, O1ne Mortgage is here to help. Call us at 213-732-3074 for expert guidance.

When Does Mortgage Forbearance End?

The duration of a mortgage forbearance period is typically negotiable but rarely exceeds 12 months. Most U.S. single-family mortgages conform to guidelines set by Fannie Mae or Freddie Mac, which limit forbearance periods to 12 months. The specific length of the relief period is outlined in the forbearance agreement, based on when you inform the lender that your hardship will be over and you can resume regular payments.

What Happens When Forbearance Ends?

When the forbearance period ends, you are required to make up for the payments that were excused. Repayment can be handled in several ways:

Reinstatement

Under reinstatement, you make a single lump-sum payment for the total amount excused during the forbearance period, plus any interest charges and fees. After reinstatement, you resume your regular mortgage payments.

Repayment Plan

A repayment plan divides the total amount excused during forbearance (including interest and possible fees) into installments, which are added to your regular monthly mortgage payments until the forgiven payments are repaid. The number of repayment installments is negotiable but usually does not exceed 12 months.

Payment Deferral

If you can resume your regular mortgage payments but lack the funds for a reinstatement or repayment plan, your loan servicer may consider a payment deferral plan. This attaches a lien for the missed payments (plus potential fees) to your house, which must be paid after you make the final mortgage payment, sell, or refinance the house.

Mortgage Modification

A mortgage modification is a permanent change to your mortgage loan that reduces your monthly payment. The amount excused during forbearance is added back into the total you owe and factored into the new payment structure. This can extend the repayment period and increase the total amount paid over the loan’s duration.

Options After Forbearance on Government-Backed Loans

Government-backed mortgages, such as FHA, VA, and USDA loans, have specific guidelines for handling forbearance and repayment. Here are the options for each loan type:

FHA Loans

FHA loans offer two types of forbearance: informal/formal forbearance and special forbearance (SFB)-Unemployment. The latter is available for borrowers who become unemployed and cannot afford monthly payments. Additionally, the Home Affordable Modification Program (HAMP) has been suspended until October 30, 2024, and replaced with temporary measures to assist borrowers with COVID-19-related hardships.

VA Loans

VA loans allow for reinstatement or repayment plans. If you are still financially unable to make payments, you may be eligible for additional assistance to avoid foreclosure. Borrowers can learn about foreclosure-avoidance options on the VA website or by contacting a VA loan technician at 877-827-3702.

USDA Loans

USDA loans offer options such as payment subsidies for borrowers who have difficulty making payments. Homeowners can call the USDA help line at 800-793-8861 to explore available options.

Other Alternatives to Consider After Forbearance

If you cannot resume regular mortgage payments or bring the loan current through reinstatement or a repayment plan, consider the following alternatives:

Refinance

Refinancing involves obtaining a new mortgage to pay off the original loan. This option is typically available after making at least three regular monthly payments on the original loan.

Sell Your Home

Selling your house and using the proceeds to satisfy your mortgage may be a viable option. If you owe more than the home is worth, a short sale may be possible with the lender’s agreement.

Deed in Lieu of Foreclosure

In a deed in lieu of foreclosure agreement, the lender considers your debt settled if you turn over the house and its property deed. This option may include a “cash for keys” exchange, providing you with money for new lodgings if you meet the departure deadline and leave the home in good condition.

The Bottom Line

Mortgage forbearance can provide temporary relief during financial hardship, but it is not a permanent solution. When forbearance ends, you must resume regular mortgage payments and make up any missed payments. If you are unclear about the terms, consult your mortgage servicer for guidance.

For expert assistance with your mortgage or refinancing needs, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your options and find the best solution for your financial situation.