Forebearance: To Pay or Not to Pay
Since the coronavirus pandemic began in March, millions of homeowners have taken the federal government up on the generous program to skip mortgage payments for up to a year with no penalties.
But in an unusual twist, more than a million borrowers in forbearance continued to make payments despite the free pass. Continuing to write the monthly check is a wise move, says Greg McBride, CFA, Bankrate chief financial analyst. "If you're able to make the payments, do so," he says. "This will keep you on your existing payoff schedule."
As the pandemic threatened to push unemployment to Depression-era levels, Congress and the mortgage industry offered payment reprieves to stave off mass foreclosures. Forbearance is available on loans backed by mortgage giants Fannie Mae and Freddie Mac, and by the Federal Housing Administration and the U.S. Department of Veterans Affairs.
For borrowers whose home loans are held by one of those entities, there are almost no barriers to qualifying for forbearance. Homeowners need not prove a loss of income or financial hardship. All a borrower has to do is stop paying his mortgage and notify his servicer. For borrowers, it seems like a can't-lose proposition.
However, continuing to pay if you can is also a smart strategy, says Melinda Opperman, president of Credit.org. "Forbearance is not forgiveness," she says. "The money will have to be paid back eventually."
There's no real downside to remaining in forbearance but think hard before exiting. Job losses might increase if there is a resurgence of the virus.