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There are a number of options for repaying forbearance, but which options are available to you may depend on who owns or backs your mortgage, your mortgage servicer, and your particular situation. There's no one-size-fits-all for options. For instance, if you have a federally backed mortgage, which is a loan from Fannie Mae, Freddie Mac, FHA, VA, or USDA, your servicer cannot require you to pay back your forbearance as a lump sum. Many servicers for non-federally backed mortgages also do not require lump sum repayments but some may, so if you only hear about a lump sum repayment ask about other options.
There are four common ways to repay the money due from your forbearance. The first option is sometimes called a repayment plan. This can be a good option if you can make your regular mortgage payment plus some extra. It adds the amount unpaid during the forbearance to your regular monthly payments over a certain period of time. Let's say your servicer offers you a forbearance where you can pause your mortgage payments for three months, and your regular mortgage payment is $1,000 each month. So the payments you missed during your forbearance add up to $3,000. Suppose your servicer offers you one year to make up the $3,000 that was unpaid due to the forbearance. Doing the math, that comes to $250 added to your regular mortgage payment each month for one year. So your total mortgage payment would be $1,250 until you make up the skipped payments. After you've repaid the payments you skipped, your monthly payments would return to the normal $1,000.
Another option is sometimes called payment deferral. That's when you wait to make up your unpaid forbearance amounts until the end of the term of your loan or when you sell or refinance your home. This option can be useful if you can keep making your regular payment but can't pay any extra. If you receive a payment deferral, you don't need to make up the payments you are allowed to pause or reduce during forbearance until the end of your loan. At the end of the loan, your servicer may require you to repay the skipped payments all at once from the proceeds of the sale or through refinance. Let's say you sell your house in 10 years—in that case, you would pay off the forbearance then.
Another option is sometimes called a loan modification. That's when you work with your servicer to change the terms of your loan to accommodate the missed forbearance payments. A modification might be right for you if you can no longer afford your regular mortgage payment because of a permanent change in your situation, such as long-term job loss. A loan modification would be, for example, if the servicer adds the missed payments to your entire loan balance, then recalculates your monthly payment, adjusting your loan term to bring your monthly payments to an affordable level. So instead of having 20 years until your mortgage is paid off, you might have 22 years to pay off your new loan balance. As you can see, your monthly payments may be lower, but it could take longer to pay off your loan, and you might have to pay more interest over the life of your loan.
The final typical option is the lump sum payment. It's just how it sounds—as soon as your forbearance period ends you repay all of your missed payments in one payment. So, let's say your servicer offers you forbearance to pause your mortgage payment for three months. With a lump sum repayment agreement, in month four, you pay your normal mortgage payment plus the payments you paused. So, if your mortgage payment is $1,000 a month, in month four when your forbearance ends, you will pay $4,000. [That’s] $1,000 for your normal monthly payment and $3,000 to repay the payments you skipped. After that, your monthly payment will go back to the normal amount. If you have the money to make the lump sum payment this can be a simple option for getting back on track. However, many borrowers may not be able to afford the higher payment. If that's the case for you, ask your servicer about other options. Remember, if you have a federally backed mortgage you will not be required to pay your forbearance payments back in the lump sum.
Those are a lot of options, but not all may be available to you. It's important to work with your servicer to understand the process, consider your next steps, and understand the best option for your circumstance. For help talking to your mortgage servicer, or understanding your options, or if you are worried about foreclosure, contact a HUD-approved housing counseling agency in your area.
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