Repaying Your Mortgage After Forbearance

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Forbearance is an arrangement in which your mortgage lender allows you to pause payments because of financial hardship. When that temporary break ends, you could have several repayment options — but the details depend on who owns your loan.

How to repay your mortgage after forbearance

Your mortgage forbearance plan lays out how long the payment relief lasts — six months, for example, or longer. Once that period ends, you’ll begin repaying the payments you missed. Depending on who owns your loan, you might have a choice of how to repay.

There can be a distinction between the company that services your loan and the entity that owns it. A mortgage servicer is in charge of the administrative aspects of your loan, such as receiving your monthly payment, handling escrow accounts and mailing you statements. You might have a loan serviced by Wells Fargo but owned by Fannie Mae, for instance. How To Refinance Into a VA Home Loan

One easy way to find out who owns your loan, as well as what options are available to you, is to ask your service provider. You can find out if Fannie Mae or Freddie Mac own your mortgage here:

  • Look up my loan with Fannie Mae.
  • Look up my loan with Freddie Mac.

Common repayment methods

If you take the full forbearance allowed, you can postpone mortgage payments up to a year. Depending on the type of loan you have, you might be offered one or more of these repayment methods:

Lump-sum payment

A lump-sum payment means you’d pay back the entire amount you owe in one payment. This is an option for some types of loans, but certainly not mandatory — it might be impossible for someone who has come off of a spell of unemployment, for example, to come up with the cash.

Short-term repayment plan

A short-term repayment allows you to repay your forbearance amount over the course of six months. If you’ve postponed mortgage payments for five months, say, and your monthly mortgage payment (including interest) is $1,000, then you’d owe $5,000. That amount would be divided by six, which is $833.33. When you resume making monthly mortgage payments of $1,000, you’d also pay $833.33 on top of that for six months until your mortgage is current again.

Extended loan modification

This repayment plan extends your mortgage term by taking the amount you owe and tacking it on to the back of your loan. For instance, if before your forbearance you had 15 years left on your loan and you postponed payments for five months, your new term would be 15 years and five months. This option changes no part of your loan except for the term. Best Mortgage Lenders Of September 2023

Cap and extend

For borrowers who can’t afford insurance or taxes (which are often paid through escrow accounts), the lender will make these payments on your behalf during the forbearance. After the forbearance period, the amount the lender paid would be applied to your principal balance and the term would be extended. In this instance, if a lender paid $5,000 in escrow payments and your balance is $100,000 over 30 years, your new balance would be $105,000 with a new term of 30 years and six months.

Repayment options by loan type

Fannie Mae and Freddie Mac loansIf you have a Fannie Mae- or Freddie Mac-backed loan, you have five options post-forbearance:

  • Reinstatement: You’ll repay all the payments you missed right away at the conclusion of your forbearance.
  • Repayment plan: You’ll establish a repayment plan and pay a portion of your missed payments off each month until the entire missed amount is accounted for.
  • Deferral: You’ll defer the missed payments until the maturity date on your loan, when they become due as a non-interest bearing balance.
  • Flex Modification program: Your servicer will permanently extend your loan’s term and/or lower your interest rate to lower your monthly payment.
  • Refinance: You’ll obtain a brand-new loan, with a new interest rate and term. To qualify, you’ll need to be officially off the forbearance plan and have made at least three monthly payments in a row, along with meeting the lender’s eligibility requirements.

FHA loans

FHA loans are backed by the U.S. Department of Housing and Urban Development (HUD). These loans don’t require a lump-sum payment at the end of a forbearance period. Instead, you’ll either do a loan modification, which could kick out your loan term up to 40 years so you’ll have a lower monthly payment moving forward; or a partial claim, which allows you to defer making payments until the loan matures, or you sell your home or refinance to a new loan.

The above FHA forbearance repayment options are in effect until Oct. 30, 2024, and apply whether or not you initially obtained pandemic-related forbearance.

VA loans

If you have a VA loan, guaranteed by the U.S. Department of Veterans Affairs, you might be eligible for a repayment plan or loan modification once your forbearance expires. To learn the best option for you, contact a VA loan specialist at 877-827-3702.

USDA loans

USDA loans, guaranteed by the U.S. Department of Agriculture, have similar repayment options to the VA loan program: either a repayment plan or a loan modification.

FAQ about repayment options after mortgage forbearance

When does forbearance end?

You can obtain a mortgage forbearance plan for six months, after which you can request a six-month extension. All told, you could pause your mortgage payments for up to a year. Mortgage Rate Forecast

How soon can you refinance after forbearance?

If you qualify for a new loan, you could refinance shortly after exiting a forbearance. You’ll need to prove you’ve been officially released from the forbearance and make a minimum of three consecutive payments on the loan.

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