9 Options For When Your CARES Act Mortgage Forbearance Ends
Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, people with mortgages backed by government-supported enterprises — including the Federal Housing Administration (FHA), Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) — were automatically eligible for mortgage forbearance.
The CARES Act stopped all foreclosures on these mortgages and allowed for a deferral period of 180 days on existing mortgages with an option for an extension. During the forbearance period, you are not required to make any payments although interest continues to accrue on the outstanding balance.
If you have received a CARES Act mortgage forbearance, it is important to start planning as soon as possible for what you are going to do when the forbearance period ends.
9 Options After the End of Your Forbearance Period
In general, mortgage companies give borrowers several months to catch up on payments after the end of the period either through forbearance or deferment. During this time, you can choose from several different options available.
1. Get Current on Your Mortgage
The best possible option to explore, if at all possible, is immediately getting current on your mortgage.
If you requested a mortgage forbearance because of the uncertainty everyone experience in the spring but ended up not needing the assistance, you should first consider paying all the skipped payments. This will keep you on track for your long term financial goals and avoid any potential bad marks on your credit.
2. Request an Extension
If you have not already used the initial extension, you can request an extension of an additional 180 days of forbearance, bringing the total forbearance period to 360 days.
This is an ideal solution if you are still facing financial hardship or uncertainty. Since the law allows the extension, your bank should be willing to comply with your request. The CARES Act only requires that you claim financial hardship to be granted the extensions. Your bank cannot require documentation or assess any fees for it.
3. Cashout Refinancing
Homeowners with significant equity in their homes may be able to do a cashout refinance and use their equity to bring their mortgage payments current. There have been reports of difficulty refinancing while the loan is in forbearance, so you’ll need to check with your bank and verify that this is an option.
Cashout refinances tend to come with higher interest rates compared to non-cashout refinances. This might still be a viable option if you have not refinanced in a while. Depending on your current interest rate and due to historically low interest rates, you may lower your payment — even after a cashout — if it has been a few years since you obtained your current mortgage.
4. Alternative Mortgage Assistance
Many state and local governments have homeowners assistance programs. Look up your local government programs and see if there are any available to you which can provide financial assistance or help to negotiate with your lender.
5. Work With Your Bank
After your CARES Act automatic deferment ends, your bank may be open to working with you and providing additional assistance.
Reach out to your bank and see if they are willing to accept partial payments, lengthen your deferral periods, or lower your interest rate. The lender has a vested interest in collecting your payments and may be amenable to making concessions if they help get you back on your feet and able to make future payments promptly. It never hurts to ask.
6. Investigate Home Equity Lines of Credit
If you have significant equity in your home, you can work with a bank to set up a line of credit — although this may be difficult if you have lost income.
It might seem odd to borrow money to pay a loan. But if you think that your inability to pay your mortgage is temporary and you can qualify for a home equity loan, this might be a way to stay in your home and protect your credit.
7. Sell Your Home With a Leaseback Sale
When you sell your home in a leaseback sale, you agree to rent the home back from the purchaser — generally a company like EasyKnock.
In this situation, you free up the equity in your home and do not have to move. Along with freeing up the equity, you also save the expenses associated with moving. This may be a good option if you were planning on selling in a few years anyway but need the equity to live on now.
Because the sale and lease are part of the same transaction, make sure that you negotiate both the price and the future rent before the sale is completed.
8. Sell Your Home and Move
If you were planning on downsizing or moving at some point, you may want to consider accelerating your timeline once the forbearance period ends.
By moving to a new home, you can shop around for the rent that you feel comfortable paying while freeing up your home equity. If you have missed payments on your home and have some bad marks on your credit, you may still be approved for a rental if you prepay several months of rent using the money you freed up by selling your home.
9. Consider Foreclosure
If you do not have equity in your home and cannot catch up on the mortgage payments, you may have to consider a foreclosure.
In this case, your mortgage is written off and you give up ownership of the home. This should be considered only as a last option since foreclosures generally have a large negative effect on your credit score and may hurt your chances of owning a home in the future.
When the CARES Act forbearance on your mortgage ends, you can seek other options if you’re still in need of assistance.
Depending on your financial situation and your lender, you may have many options for remaining in your home and preserving your credit. Before rushing into any decisions, you should evaluate what can be provided by your bank, government programs, and alternative lenders to make the best decision for you and your family.
Tom BurchnellProduct Marketing Director
Tom Burchnell, Director of Digital Product Marketing for EasyKnock, holds an MBA & BBA in Marketing from University of Georgia and has 6 years of experience in real estate and finance. In his previous work, he spent time working with one of the largest direct lenders in the SouthEast.