Millions of Americans were left jobless or on stricter incomes as a result of the COVID-19 pandemic, making paying the bills a daily struggle. In response, many credit lenders offered special repayment options, while under the CARES Act, homeowners and students with federally backed loans were offered temporary payment relief in the form of forbearance.
Forbearance, when your lender allows you to defer payments for a specific period of time, is a limited reprieve. When it ends, you’ll be faced with the decision on how you want to pay back your forbearance balance while also resuming regular monthly payments.
If you were granted a mortgage, student loan, or credit card forbearance, you should know your options for repayment.
With a mortgage forbearance, your mortgage servicers allow you to pause or reduce your payments for a limited period of time without incurring penalties or hurting your credit score. Under the CARES Act, federally backed lenders and servicers were required to offer homeowners payment forbearance, which included FHA Loans, VA Loans, USDA loans, and all mortgages from Fannie Mae or Freddie Mac. Other homeowners may have also qualified for relief programs from lenders. But no matter who the mortgage servicer is, any skipped payments and interest have to be paid back over time.
But what are your options?
One option is a repayment plan, which means you continue on with regular mortgage payments while adding portions of your forbearance balance each month until it’s paid off.
While this may be impossible for many people, there is always the option to pay your forbearance balance in one lump-sum payment, also called reinstatement. However, under the CARES Act, lenders cannot require you to repay the balance in a lump sum.
You can also choose to go with a deferral or partial claim, which means you can defer the forbearance balance until you’re done paying off your mortgage (this might be a great option if you can’t afford to take on a heavier payment load), or your loan payments will be put into a junior lien, which is repayable when the owner refinances, sells, or terminates their mortgage.
If you’re committed to staying in your home yet still can’t afford to pay your mortgage payments, you can apply for a loan modification, which would lower your interest rate or balance, or extend your mortgage repayment plan so that your monthly payments are more affordable.
Student Loan Forbearance
As of Sept. 30 under the CARES Act, the terms for student loan forbearance are up. Until then, no interest will accrue on loans and you do not have to pay on monthly payments. However, just like with your mortgage payment, forbearance doesn’t eliminate what you owe, it just gives you a grace period. You can repay your forbearance balance in one lump sum, or it can be added to your loan balance. If you find you’re still unable to pay your student loans, it’s possible to apply for deferment. During this time, interest on federally subsidized loans will not accrue, while any interest on unsubsidized loans will be added to your loan.
Credit Card Forbearance
While receiving a forbearance or deferment on your credit card payments may have been a means to survival during hard times, it’s only a short-term solution that does not eliminate the accrual of interest. And, if you still were able to continue using your credit card while it was in forbearance, the balance will be even higher, resulting in more debt than before. If you can’t make regular payments when forbearance ends, or the debt now seems overwhelming, you may want to look into a debt management plan. Credit counselors will work with you and your credit card lenders to consolidate your payments, reduce your interest rate, and pay off your loan in three to five years, all with one affordable monthly payment.
The option to choose forbearance has helped many people from defaulting on payments, but as the term limits come to an end, being aware of your choices will allow you to make a plan, so that you can tackle future payments with confidence and make educated decisions about your financial future.
If you’re worried about paying back these outstanding debts, give CCCS of Rochester a call and ask about our debt management program.