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What to Do When Your CARES Act Mortgage Forbearance Ends

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Millions of Americans have lost their jobs or taken a hit to their income during the pandemic. If that's happened to you, you may have opted to put your mortgage into forbearance.

Normally, forbearance is something you apply for that your mortgage lender may or may not approve. But thanks to the CARES Act, which was signed in late March to provide financial relief during the coronavirus crisis, homeowners with mortgages backed by the federal government or a government-sponsored enterprise may be eligible for this option. During a forbearance, no payments are due.

Mortgage payments aren't forgiven during forbearance; they're just paused to prevent homeowners from falling behind. Under the CARES Act, borrowers are allowed an initial 180-day forbearance period, followed by a second 180-day extension for a total of 360 days without having to make a mortgage payment. Right now, many of those initial forbearance periods are coming due for homeowners who sought relief early on in the pandemic. But what happens next?

When mortgage forbearance ends

If your financial situation has improved since you requested forbearance, and you can keep up with your upcoming mortgage payments, then you may not need an extension. But before you forgo that extension, consider that once you exit forbearance, you'll be in catch-up mode and will need to make good on the payments you skipped.

Now, the way you make those payments up will depend on the arrangement you make with your lender, but generally, you'll have anywhere between three and 12 months to catch up. Another option may be to extend your mortgage repayment period and make those catch-up payments once you've finished making your regular payments. For example, if you have 16 years left on your mortgage, you'd make payments for 16 and 1/2 years to cover the six months of payments you missed.

However, if you still can’t pay your mortgage when that first forbearance period under the CARES Act ends, all you need to do is request a six-month extension with your lender. But remember, once that period ends, you'll need to start making upcoming mortgage payments on time while also catching up on missed payments.

If you're not able to do that, you can ask for loan modification, where your lender works with you to change the terms of your mortgage so it's easier to make payments. For example, your lender might extend your loan repayment period from 15 years to 20 or lower your interest rate to make your mortgage more manageable.

If that doesn't work, and you're unable to pay your mortgage once forbearance ends for good, then you may have no choice but to sell your home. If your home is worth more than your mortgage balance, you simply list your property and use your sale proceeds to pay off your lender. If your home is worth less than your mortgage balance (which is often referred to as being underwater on your mortgage), you can see if your lender is willing to do a short sale. In that case, your lender accepts your sale proceeds as repayment of your mortgage and forgives whatever balance remains. A short sale could hurt your credit score, though, so it's best to avoid this option whenever possible.

Communicate with your lender

While mortgage forbearance has been a lifeline for homeowners during the pandemic, it eventually has to come to an end. If your home loan is in forbearance, stay in touch with your lender so you know what's expected of you afterward, and so your lender knows if you’re still in the midst of a hardship. The more communicative you are, the easier it will be to cope with that post-forbearance period whenever it arrives.

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