What happens when mortgage forbearance ends? Extension and repayment options

Erik J. Martin
The Mortgage Reports contributor

Is your mortgage forbearance about to end?

Mortgage forbearance provided a lifeline for millions of homeowners during the most difficult months of the pandemic.

But with the one-year end date for many forbearance plans rapidly approaching, homeowners will have to decide how to move forward.

Do you need to extend your COVID forbearance plan for another 3-6 months? Or are you ready to exit — and if so, what are your options?

Here’s what you need to know.

Want to refinance after forbearance? Check your eligibility (Jul 27th, 2021)

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Mortgage forbearance end dates

Under the CARES Act, homeowners with conventional, FHA, VA, or USDA loans could request an initial loan forbearance for up to six months. They could also request a six-month extension, for up to one year of total forbearance.

“Forbearance plans are based on when you requested them,” explains David Shapiro, president and CEO of EquiFi Corporation.

That means homeowners who entered forbearance plans early in the coronavirus pandemic are likely nearing their forbearance end dates.

For example:

  • Say you have a conventional mortgage loan
  • You initially requested forbearance on April 1, 2020
  • At the end of your six-month forbearance period, you requested a six-month extension
  • Your current forbearance plan would be set to expire on April 1, 2021

Some homeowners will be ready to exit their forbearance plans when these end dates arrive.

Remember that when you do exit forbearance, you’ll need a plan in place to repay the payments you missed during that period.

But you will not have to repay the missed amounts as a lump sum right after exiting forbearance.

We discuss repayment options below.

Many Americans, though, are still experiencing financial hardship due to coronavirus.

If you’re currently unemployed or in a position where you’re unable to resume monthly mortgage payments, you may be able to extend your forbearance plan for another 3-6 months.

Can I get a forbearance extension?

Six months of forbearance may have provided you a welcome buffer period to get back on solid financial ground.

But if you continue to experience money problems due to lack of employment, medical bills, or otherwise, you’re probably worried about how you’re going to pay the mortgage.

The good news? Recent changes by Fannie Mae, Freddie Mac, and the federal government have given homeowners additional opportunities to extend their forbearance plans.

  • Homeowners with conventional loans can request one additional 3-month extension, for 15 months total loan forbearance. To be eligible, you need to have been in a COVID-19 forbearance plan prior to February 28, 2021
  • Homeowners with government-backed loans (FHA, VA, USDA) can request two additional 3-month extensions, for up to 18 months total forbearance. To be eligible, you need to have been in a forbearance plan prior to June 30, 2020

So, depending on the type of mortgage you have, you may be eligible for 15-18 months of loan forbearance when all is said and done.

However, your mortgage loan servicer still gets to make the final decision on your forbearance extension.

Remember, your servicer is the company to which you make your mortgage payments. Different servicers have different requirements to qualify for mortgage forbearance, so you need to check with yours about options.

As always, help is only available if you ask for it.

Your mortgage forbearance will NOT be automatically extended. If you need an extension, you must call your servicer and request one.

How to request an extension

“Loan servicers are supposed to reach out to borrowers 30 days before the forbearance plan is scheduled to end to help them understand what options they have for repayment,” says Dongshin Kim, assistant professor of finance and real estate at Pepperdine Graziadio Business School.

But you shouldn’t necessarily wait for your lender or servicer to contact you about this option.

“If you need to continue your forbearance, contact your mortgage servicer well ahead of your forbearance end date,” recommends Jackie Boies, senior director of housing services at Money Management International.

“You need to prepare for relief to end now. Do not wait until you get your statement to ask a lender for help. Instead, contact them now, let them know your financial situation, and see how they can help.”

Can I start a new mortgage forbearance right now?

Many homeowners began their forbearance plans early in the pandemic. But what if your finances are just now beginning to run thin? Can you request a new forbearance plan in 2021?

For the time being, the answer is yes — as long as your loan servicer agrees to it.

  • Homeowners with FHA, VA, and USDA loans can request an initial forbearance until June 30, 2021
  • For homeowners with conventional loans, there is currently no deadline for requesting initial forbearance, according to the Consumer Financial Protection Bureau

Keep in mind, forbearance is typically a ‘last resort’ solution for homeowners who don’t have other relief options.

Your first step should be to check whether you’re eligible to refinance into a loan with a more affordable monthly payment. If you can refinance and keep making mortgage payments each month, that’s ideal.

However, homeowners who are currently unemployed likely won’t be able to refinance, as this almost always requires income and employment verification.

If you’re unable to refinance, a forbearance plan might be the best path to mortgage relief. Your loan servicer will help you understand your options.

Check your refinance eligibility (Jul 27th, 2021)

What happens when forbearance ends?

If you’re ready to resume payments at the end of the forbearance period, be prepared for what happens next.

“Forbearance is not loan forgiveness. Borrowers will still owe the principal and interest that they didn’t pay during the forbearance period,” notes Kim.

“Borrowers will need to make both the regular mortgage payments and also all the payments they missed while the loan was in forbearance.”

You will typically have several options for repayment once forbearance expires:

  1. Full repayment, which is a one-time lump sum payment. It’s possible to pay back all the missed payments at once. But lenders are NOT allowed to require this. “If you are unable to pay the lump sum, you have other options,” says Boies
  2. Intermittent payments, where you arrange repayment with your servicer over three, six, nine, or 12 months — whichever makes the most sense — on top of your regular payments
  3. Lengthen your loan term and pay off the missed amount at the end of the extended loan term, with additional mortgage payments
  4. Payment deferral. This option lets you pay off the missed amount when the home is sold, refinanced, or at the end of the loan term
  5. Pursue a loan modification. “This helps borrowers who are at risk of default change their mortgage terms – usually including a lower interest rate, reduced length of the loan, or reduced monthly payment,” adds Boies

The right option for you depends on your current finances, employment status, and ability to resume mortgage payments.

When you contact your loan servicer, be sure to discuss every option in detail so you know exactly what to expect with the repayment plan you select.

Expect delays when contacting your mortgage servicer

The experts warn that you should anticipate a few possible snags and setbacks post-forbearance, especially when it’s time to contact your loan servicer.

“Borrowers should expect very long delays and may experience inconsistency in customer support representatives,” cautions Shapiro.

“Loan servicing organizations are not all properly staffed for the expected volume of forbearances, and they can’t train support agents fast enough to meet their needs.

“Also,” Shapiro continues, “be prepared for process changes, as regulators react to the crisis in real-time and create new rules or modify existing rules.”

Even if you can’t get through on the first few contact attempts, don’t give up.

“Be patient, but be persistent. Mortgage servicers have struggled to keep up with calls during the COVID crisis, but many have made online options easy and added staffing,” says Boies.

Keep a close eye on your credit report and score

If your mortgage has been in forbearance, check your credit report carefully.

CARES Act rules state that mortgages in forbearance should not be reported as having late or missed payments. And the forbearance plan should not harm your credit score.

But this is another area where mistakes can happen.

“Sometimes there can be mistakes and issues with credit scores that can pop up around forbearance,” Kim says.

Remember, lenders and servicers have never before had to deal with mortgage forbearances on this scale. So it’s up to the borrower to be extra-vigilant and make sure nothing slips through the cracks.

Check your loan statements every month and stay on top of your credit report.

Remember, you get one free credit report per week through April 2021. So you can keep a closer eye on it than usual.

Can I end my forbearance plan early?

You don’t have to wait for a six- or 12-month forbearance period to come to an end. Instead, you can opt to exit forbearance earlier than expected.

Just be prepared to pay back the amount you weren’t able to pay while forbearance was in place, cautions Kim.

“The best time to end forbearance is when the borrower is comfortable and able to make payments, including the additional money for repayments they owe,” Kim adds.

If you’re ready to end forbearance, contact your loan servicer and request this.

“But be sure your financial foundation is strong enough, meaning you have some type of emergency fund to back up your ability to pay your mortgage,” suggests Shapiro.

And, make sure you understand your options for repaying the missed amounts so you’re ready to discuss them with your servicer.

Can I refinance after forbearance?

Refinancing after you exit forbearance could be a smart move.

If you’re able to lock in a lower interest rate and monthly payment, it could make resuming your mortgage payments that much easier.

That goes double for homeowners who decide to repay their missed loan amount by adding a little extra to each monthly payment.

Typically, you won’t be able to refinance right away.

But you might be able to do so after you’ve been making payments for a few months.

For most major loan types — including conventional, FHA, and USDA loans — you need to have made at least 3 consecutive payments after exiting forbearance in order to be refinance-eligible.

As long as you meet basic loan requirements, you shouldn’t have to wait longer than 3 months to refinance

Refinance waiting periods on FHA loans may be less than 3 months for some borrowers who qualify for a Streamline Refinance.

The VA loan program is even more lenient.

The VA doesn’t impose a specific waiting period to refinance after forbearance. It only says VA lenders must verify that the borrower has recovered from their financial hardship.

Keep in mind, refinance requirements will vary by lender.

If your current mortgage lender wants to impose a longer waiting period to refinance, shop around for a different lender that can help you refi sooner.

As long as you meet basic credit, income, and debt requirements, you shouldn’t have to wait longer than 3 months after your forbearance plan ends to refinance

Verify your refinance eligibility (Jul 27th, 2021)

Can I buy a new house after forbearance?

Having a mortgage forbearance in your past shouldn’t stop you from buying a new home in the future.

Historically, lenders have had stricter requirements about getting a home purchase loan after forbearance. But that was before COVID.

Now, lenders and mortgage agencies understand that the pandemic forced large swaths of homeowners into forbearance — many of whom are otherwise perfectly creditworthy.

As a result, they’ve loosened up requirements to qualify for a new home purchase with a COVID-related forbearance in your past.

Rules are similar to those for refinancing. If you want to buy a new home with a conventional, FHA, or USDA loan, you need to have made at least 3 consecutive payments on your current loan after exiting forbearance.

Again, the Department of Veterans Affairs is most lenient here. It says “lenders should not use a CARES Act forbearance as a reason to deny a Veteran a VA-guaranteed loan.”

Rather, VA borrowers will need to explain the reason for their COVID forbearance and prove that they’re now on solid financial footing.

Of course, borrowers hoping to buy a home after forbearance will also need to meet basic requirements for credit score, down payment, debt-to-income ratio, and ongoing income/employment.

But, provided you meet these guidelines, lenders can’t deny you a home purchase loan just because you had a COVID-related forbearance in the past. 

Check your mortgage eligibility (Jul 27th, 2021)

What if you still can’t afford your mortgage payments after forbearance?

The worst-case scenario: Forbearance ends and you still can’t pay your monthly mortgage. What can you do?

“You’ll probably need to consider disposition options,” says Boies.

“This may include selling your home if you can no longer afford it. Foreclosure, short sale, and deed-in-lieu are other ways of disposing of a home you can’t afford.”

Boies warns, “These options may be damaging to your credit and should be reserved until you’ve exhausted all other solutions.”

The bottom line

If your mortgage forbearance plan is nearing its end date, you have options.

As long as your initial forbearance was under the CARES Act, your loan servicer cannot ask you to repay all the missed payments at once.

Make sure you explore your options and find a repayment plan you’re comfortable with.

Conventional, FHA, VA, and USDA loans are also offering forbearance extensions until at least mid-2021. So if you’re not ready to resume payments, ask your loan servicer whether you qualify for an extension.

And remember that forbearance is never automatic.

Whether you need an extension or you’re ready to start making payments again, you need to talk to your loan servicer and make sure it’s on board with the plan. 

Verify your new rate (Jul 27th, 2021)