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“All they offered was a 90-day forbearance and a balloon payment at the end,” he said.
“How am I supposed to do that? If I have no income, which is why I’m trying to defer payment, how am I supposed to come up with it all at once at the end? That’s out of the frying pan into the fire.”
But that’s not necessarily the case. Here’s what you need to know.
Lump sum repayment is not required in forbearance
“It wasn’t unique to one servicer and it wasn’t accurate,” she said. “Homeowners should be given a range of options.”
She said some homeowners were not clear if they have a mortgage that qualifies under the CARES Act, while others may be given incomplete or inaccurate information by their lenders.
While the CARES Act requires some servicers to grant forbearance, it does not specify how repayments are to be made.
If you were told the only payment option from your lender was a one-time payment, call again. Miano called his lender again this week, a month after the first call inquiring about forbearance. This time the offers were very different, he said.
“What they are offering now could certainly help borrowers that get laid off or don’t have the money to make the mortgage payment,” he said.
Know your payment options
For loans covered by the CARES Act, which include federally backed loans, servicers are supposed to contact homeowners about 30 days before the end of the forbearance period to determine options, which may include a balloon payment, or paying all of your missed payments at one time if you can. Since most people won’t be able to do that, other options are available.
You may be able to spread payments out over a period of months, tack them on as additional payments at the end of your mortgage, or even receive an extension of the forbearance period if needed.
During the forbearance period, servicers will typically evaluate your situation to determine your ability to pay. If the servicer determines that you will be able to pay your debt after a hardship period, even if it needs to be a lower monthly amount because of a lasting income change, a modification to the loan terms may be made.
A loan modification changes the existing terms of the loan by some combination of reducing your interest rate, extending the life of the loan or even changing the type of loan.
Kicking the problem down the road
While a forbearance is a temporary improvement now, it could cause larger problems later, said Deeksha Gupta, assistant professor of finance, Tepper School of Business at Carnegie Mellon University.
“Forbearance is a sensible thing to do now because you may be able to avert a foreclosure in the short run,” she said. “But if you don’t have a way to pay the mortgage long term, there will be a problem.”
With so much uncertainty about how long you may be out of work, Gupta says it might be too early for many people to know what they will and won’t be able to afford months from now.
“We know that we need some sort of forbearance, otherwise we will see wide scale defaults,” Gupta said. “But what will employment look like? What types of payments can people make on their mortgage? It is hard to enter into a loan modification right now and know what it means for you later.”
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