Repaying your mortgage after forbearance

Mortgage forbearance gives borrowers experiencing financial hardship a temporary break on payments. But what happens when the break ends? Knowing your post-forbearance options is important so you are prepared when it’s time to start making payments again.

When does mortgage forbearance end?

An initial mortgage forbearance period can last from three to six months — more likely six, now that the pandemic protections have expired. Beyond that, you’ll need to ask your lender for a forbearance extension. Most loans can go into forbearance for up to 12 months, some even longer.

What to do when mortgage forbearance ends

If you’ve reached your mortgage forbearance end date, you can request an extension, make a payment, modify your loan or sell your home. Here’s what those options look like:

Request a forbearance extension

You can request an extension if you are still struggling financially when the first forbearance period ends. Here’s what you can do:

1. Call your mortgage lender or servicer. You might qualify for a forbearance extension but must ask for it. If you don’t communicate with your lender and are taken out of forbearance but fail to make payments, you’ll harm your credit and potentially lose your home.
2. If your lender cannot offer you a forbearance extension, ask them how you can work with them to avoid defaulting on your mortgage.

Make a deferred payment

Ask your servicer if you can defer any missed payments until you sell your home or refinance after forbearance. By doing so, you will simply pay off what you owe when the mortgage ends.

Make a payment

Forbearance is not loan forgiveness but a form of temporary relief to help you remain in your home. You’ll eventually need to repay the skipped payments. Most lenders give you these options to do so:

• Lump-sum payment. You have the option to pay back what you owe with a lump sum payment.
• Short-term repayment plan. This option allows you to repay what you owe over a period of six months.
• Extended loan modification. If approved for a mortgage loan extension, the amount of time your payments were deferred during forbearance will be added to the end of your loan.  
• Cap and extend. This option involves the lender making payments for you during forbearance and then applying the amount it paid to your principal balance and extending your term.

Modify your loan

Depending on your lender, you might be eligible for a loan modification. This involves permanently changing your mortgage terms, like the repayment period, interest rate or principal balance, to make the monthly mortgage payments more affordable. You’ll have to resume payments if the lender agrees to modify your loan once your forbearance ends.

To request a loan modification, you’ll need to:

1. Gather financial documentation to plead your case to your lender, including proof of financial hardship. Be mindful that a loan modification is sometimes only offered to borrowers who can demonstrate that the current payment is unaffordable.
2. Contact your lender or servicer and ask for a loan modification. They’ll have you fill out and submit an application.
3. If you are denied, you might be able to request an appeal.

Sell your home

Your lender or servicer might be able to help you on the road to your next living situation and probably wants to avoid foreclosing on your home as much as you do. If you’re open to relocating, selling your home could be a way to avoid foreclosure.

“A lot of these borrowers have equity in their homes, so they can sell their current houses and use that equity to help pay off their existing mortgage and possibly fund a down payment on a cheaper house or at least put some money into savings after the sale,” says Marina Walsh, vice president of Industry Analysis at the Mortgage Bankers Association.

“Another option if they don’t want to proceed with the foreclosure route and they’re willing to move, there are programs like Cash for Keys, in which the lender assumes the title of the home, but might provide the borrower with some relocation assistance to help them settle in a new, more affordable housing situation,” says Walsh, adding that a borrower and their lender might also consider a short sale. That’s when you sell your home, and even if the proceeds are not enough to pay off the full mortgage, the difference is essentially forgiven.

Repayment options by loan type

If you have a Fannie Mae- or Freddie Mac-backed loan, you have five post-forbearance options:

• Reinstatement: You’ll repay all the payments you missed right away after your forbearance.
• Repayment plan: You’ll establish a repayment plan and pay off a portion of your missed payments each month until the entire missed amount is accounted for.
• Deferral: You’ll defer the missed payments until the maturity date on your loan when they become due as a non-interest-bearing balance.
• Flex Modification program: Your servicer will permanently extend your loan’s term or lower your interest rate to lower your monthly payment.
• Refinance: You’ll obtain a new loan with a new interest rate and term. To qualify, you’ll need to be officially off the forbearance plan, have made at least three consecutive monthly payments and meet the lender’s eligibility requirements.

Refinancing after mortgage forbearance

Another possibility: Refinance your loan to a new one with a lower, more manageable payment. This isn’t always feasible, however, especially because you were struggling financially to begin with. However, you might be able to get a low-cost refinance to help cut costs. You will need to have at least a 620 credit score and enough equity in your home, usually 20 percent, to qualify for a refinance.

In addition, you typically cannot apply for a refinance immediately after coming out of forbearance. Many lenders require what is known as a “waiting period” after forbearance before they will approve a refinance. The length of the waiting period varies by your loan type and lender, so be sure to reach out to your lender about its requirements for refinancing after forbearance.

Frequently asked questions on ending mortgage forbearance

• Can you buy a new house after mortgage forbearance?

  Yes. If you don’t think you’ll be able to afford your current mortgage payment in the long term, one option is to sell your home and buy a newer, less expensive house.
  

• Can mortgage forbearance be forgiven?

  No. Your lender will hold you responsible for making up all payments you missed during forbearance, so mortgage forbearance cannot be forgiven.
  

Bottom line

If you’re nearing your mortgage forbearance end date, that doesn’t mean you’re about to lose your house, even if you still can’t afford your mortgage payments. Stay in touch with your lender and see what options are available to you. “It’s better to call and think through options instead of hiding under a rock,” says Walsh.