Skipping Mortgage Payment: Things Homeowners Should Know10 min read
The COVID-19 pandemic has hit hard not just the health sector but also the economic sector. Lays-offs have become the norm since the pandemic struck and paying bills has become a nightmare for many. There is nothing much people can do other than skipping mortgage payments.
Scary isn’t it? Well, not really!
The good news is that help is at hand for many homeowners in the form of forbearance. This is not just for those who have taken the loan under the federal housing schemes but there are many mortgage services that are offering deferment considering the pandemic-induced economic crisis.
So, what is the first step you are supposed to take if you find yourself in a fix and you are unable to make ends meet.
The first step is to consult your mortgage service provider or the bank you have taken the loan from. Mind you, just because there’s help, doesn’t mean you should take it. Think it through, reach out for help only if you think you are cash strapped. You are being given a break and that does not mean you do not have to pay.
The option of skipping mortgage payment is extended to you on the condition that the interest and principal amount will be added to your total payable amount at the end of the mortgage tenure.
So, the next big question is should you then seek a moratorium?
When is Skipping Mortgage Payment okay?
Think twice before you apply for forbearance, experts across the board advise. Think of a deferment if you are cash strapped, savings are dwindling and your expenses are increasing.
Without a doubt, those who think they are on the verge of bankruptcy and cannot make the mortgage payment the next month under any circumstance call up the bank and explore how to deal with the situation.
You might not have to furnish any proof of your cash-strapped status but you might be asked to sign a document or fill up an application.
We suggest starting with a three-month period and see if things work out for you and then get it extended if you still think you are struggling.
In case you are able to start paying sooner than you thought then call the mortgage servicer, as you see, less is better here.
Skipping Mortgage Payment: Terms and Conditions
The idea of forbearance or forgiveness is that it basically allows the borrower to halt payments during a crisis situation say natural disasters or in a pandemic situation like this.
It is basically a temporary relief provided to you to be able to tide over the crisis. You will have to repay the missed payment and interest at the end of the forbearance period.
In a deferment, experts say it might be a bit different as interest is sometimes put on hold and the payment is added onto the end of the loan term.
Basically, different structures for the two, and it varies from institution to institution. However, in the case of a pandemic, the US government announced a hybrid of the two in the form of the CARES Act Mortgage Provision last year.
Under this, the interest still applies, but there is no additional charge or fee while the payments are halted. You have the option of either paying this amount at the end of the deferment or at the end of the loan term.
If you have borrowed under the federal scheme then the CARES Act permits you to skip mortgage payment for 180 days or three months. Avail of a 180-day extension if you need forbearance for 12 months.
To help homeowners catch up on their missed payments, the FHA has come up with a partial claim under which borrowers do not have to bother about paying a lump sum amount. This is allowed under the US government’s COVID-19 National Emergency Forbearance.
There are different rules for each mortgage service provider, talk to them for clarity.
Will skipping mortgage payment impact your credit score?
Now, that’s a valid doubt that anyone availing moratorium will have in mind. A credit score as we all know is important and it all depends on how disciplined you are in your loan payments.
Don’t worry, this is not a usual scenario and so your credit scores will not be affected. Skipping payments in this situation is categorized under the relief agreement and incurs no penalty.
The mortgage service provider in this kind of situation reports the status as current for the period you apply for a deferment.
But remember to apply for an extension before the expiry of the deferment or else the lender or the bank will report the missed payment to the credit bureaus and this could impact your score.
Is refinance possible during forbearance?
No, not quite, because refinancing may be an issue with lenders who are not ready to take risks in this scenario. They may ask you to wait for 12 to 18 months before they give you the nod.
This is because lenders would first want to be assured that you can make payments. So, if you are thinking of taking advantage of the low-interest rates then first restart your payments and regain the confidence of the lender and then look for refinancing.
Make every effort to avoid skipping mortgage payments. An option of forbearance is just a relief to get you through difficult times and it is money that you need to pay at some point sooner or later.
However, if you do feel as a homeowner that you really can’t make ends meet, call your lender or bank and talk to them. Understand what the terms are and once you are on your feet start paying up, because like we said less is more.