Mortgage Myths To Avoid During Coronavirus

If you’re among the 4.1 million homeowners who were allowed to skip or make reduced mortgage payments in May, you might have seen your finances improve lately so that you can start making full payments again.

The forbearance rate increased slightly to 8.16% as of May 10, up from 7.91% the week before, according to the Mortgage Bankers Association. That slight uptick is the smallest increase since March.

That’s the good news.

The downside is that homeowners are still requesting mortgage relief through forbearance, meaning they can skip or make reduced payments.

The U.K.-based economic forecasting firm Oxford Economics estimates that 15% of homeowners will fall behind on their monthly mortgage payments. During the Great Recession the peak delinquency rate was 10%.

As they seek to learn how they can get mortgage forbearance, some people may run into mortgage myths that should be avoided. Here are some to look out for:

Forbearance is temporary. Stimulus legislation allows federally-backed mortgage holders to request forbearance for up to 12 months.

Don’t believe any claims that mortgage payments will be “waived” or “forgiven.”

Any skipped or reduced payments during the 12 months that mortgage payments can be skipped or lowered doesn’t mean they’re gone forever. The coronavirus pandemic will hopefully end someday, but forbearance payments must be repaid in the future.

Payments are only paused to help you get back on your feet.

The missed or lower payments won’t be forgiven, waived or erased, the Consumer Financial Protection Bureau points out in a guide on coronavirus mortgage relief options.

You should contact your servicer when your income is restored and resume making payments. If you don’t have a federally-backed mortgage, contact your loan servicer or state officials for relief options.

No, you don’t have to save up a huge amount of cash for when your loan repayment resumes. If that’s the case, why go into forbearance?

Repayment terms differ by program and type of loan, but all must be repaid eventually. For example, home loans through Fannie Mae, Freddie Mac, FHA, VA or USDA don’t have to be repaid all at once.

When forbearance ends, the missed payments can be:

Made at one time in a lump sum that is repaid when forbearance ends Spread out over several months, such as the exact number of months in forbearance Added as additional payments at the end of your mortgage Added to the end of your loan as a lump sum By extending the loan term for 40 years

The above options depend on your loan provider, type of loan and in some cases, what works best for you.

It’s unlikely you’ll be given one option by your loan provider. Their goal is to get loan payments restarted as soon as possible, but in a way that borrowers can afford so that they can keep their homes and continue making monthly payments.

Financial situations are different for different people, so lenders are likely to offer a variety of payment plans.

If you can afford to pay a little more each month with your regular monthly mortgage payment, then a mortgage provider should be able to work out a plan with you. If you’d rather add a few years to your loan, then that can be an option too.

Whatever terms you’re seeking, discuss them with your mortgage provider as soon as you can.

This myth is entirely wrong. Anyone can apply for forbearance.

You shouldn’t make a request lightly, however.

If you can’t keep up with your current mortgage and need help, then ask for assistance as soon as you realize this. Delaying the decision when you’re already unable to pay your bills and have lost your job could put you in a bigger financial hole.

This sounds like a logical conclusion. Stop paying the bill that you get each month, and your credit score will drop.

It sounds like it applies with forbearance, but it doesn’t.

Putting off mortgage payments through forbearance won’t hurt your credit score. What’s important to remember is to follow the written agreement with your mortgage provider and make payments again when the agreement calls for it.

To make sure your credit score doesn’t drop, be sure to continue making payments until the formal, written agreement is in place that allows forbearance. And make them on time.

Late or missed payments are one of the biggest ways to lower a credit score. Missing any before a forbearance plan is put into place can drop a credit score, which can make getting credit in the future much more difficult.