At the height of the coronavirus pandemic, 4 million U.S. homeowners were in forbearance. A provision of the CARES Act allowed many homeowners to skip or pay a smaller portion of their monthly mortgage to stay afloat.
For those under forbearance, whether for student loans, consumer debt or mortgages, the temporary relief can help them get back on their feet instead of under more debt. But what is forbearance? Is it a temporary solution, and what happens when forbearance ends?
Before diving into the end of a forbearance period, let’s quickly outline the different types of forbearance. For a deeper dive into the topic, check out our guide that helps answer “what is loan forbearance?”
When a homeowner experiences some kind of hardship or emergency, they may choose to consider forbearance with their lender. Depending on the homeowner’s situation and the options available with their lender, they may have the choice to temporarily skip payments or pay only a portion of the designated amount each month.
Widespread COVID mortgage forbearance was a provision of the CARES Act. Specifically, federally backed mortgages were eligible for forbearance. That includes any loan held by:
- Fannie Mae.
- Freddie Mac.
- Federal Housing Administration (FHA).
- U.S. Department of Agriculture (USDA).
- Veterans Affairs (VA).
Although the CARES Act didn’t specifically address privately held mortgages, homeowners can still reach out to their mortgage servicer to apply for forbearance, as long as they can prove financial hardship.
Student loan forbearance can be requested when a borrower can’t make payments, whether it’s for financial or medical reasons.
Only those with federal student loans can apply for forbearance. The CARES Act automatically provided all federal student loan borrowers temporary forbearance on all payments. In addition to pausing monthly payments, the Act dropped federal student loan interest rates to 0% and paused collection on delinquent accounts.
Credit card forbearance will vary based on the company who issues the credit card. No hard and fast rule requires credit card companies to offer forbearance to customers — the customer has to approach their credit card company to request this. However, credit card companies can be understanding, knowing it’s better to work with a customer to create a repayment plan than have to pursue the debt through collections.
Forbearance can mean anything from reducing interest rates to pausing payments or waiving incurred fees. What a credit card forbearance plan will look like depends on the arrangement between the credit card company and the cardholder. Often, these arrangements are called credit card hardship programs.
When you work with your loan servicer to create a forbearance agreement, it typically includes the length of time the forbearance lasts. Consider reaching out to your lender before your forbearance period ends to make plans about repayment, extension, or other options.
Specifically, when your forbearance ends will depend on the forbearance agreement you made with your lender. For example, mortgage forbearance under the CARES Act could last up to six months.
If you are unsure when your forbearance ends, reach out to your lender to confirm the date and when repayment will begin. Missing the start of the repayment period could mean a negative hit on your credit report.
Knowing the end date of your forbearance can be important because once it’s up, you are responsible for repayment. At the time of your forbearance agreement, you and your lender may have drawn up the terms of forbearance repayment. Remember, forbearance is only temporary, not all-out payment forgiveness. You still owe your lender for payments that were not made during the forbearance period.
If you haven’t agreed on a repayment program, consider reaching out to your lender before forbearance ends. From there, you’ll be able to make a plan to make up missed payments, which could include any of the following:
- Lump-sum repayment. Some lenders may require you to make up for missed payments in a single lump-sum charge after your forbearance. That means if your monthly payment was $1,000 and you had a six-month forbearance period, you’ll owe $6,000 to your lender immediately. Under the CARES Act, federally held mortgage lenders can’t ask for repayment in a lump sum.
- Higher monthly payments. Let’s take the same example for the $6,000 owed above. Your lender may work out a repayment agreement with you in which the outstanding amount will be added to your monthly payment, to be repaid over time. That means your monthly mortgage or student loan payment will be higher than it was before until you repay the owed sum.
- Longer loan term. A type of loan modification, some lenders will allow you to extend the length of your loan, tacking on those missed payments to the end of your loan. Using the same $6,000 example, you’d extend your loan by six months of $1,000 payments to make up for the missed payments. Similarly, a lender may offer to create a separate loan to repay instead of changing the terms of your initial loan.
With a clear idea of what your new monthly payments look like, you may want to start budgeting to accommodate post-forbearance expenses.
Depending on the specifics of your hardship, six months may not be a long enough period for you to get back on your feet. At the end of the period, you may still be unemployed, under medical leave or otherwise unable to make payments on your loan.
If that’s the case, you may qualify for an extension on your forbearance. Under a federally held mortgage, you can extend forbearance up to 12 months, and even 18 months in some exceptional cases.
With privately held loans or credit card debt, extensions are not as clear-cut. If you believe you’ll need an extension, consider reaching out to your private lender before your initial forbearance ends and explaining your circumstances. They may choose to extend the current agreement, work out a new one, or they may deny your request.
Whether you’re ending your forbearance or attempting to extend it, there will come a day when you have to consider what happens when forbearance ends and you begin to repay. Working with your lender in advance to confirm the end date and repayment plan can save confusion and stress and help avoid negative marks on your credit report.
If your credit card hardship program is coming to an end and you’re unsure how to start repaying your credit card debt, consider Tally. Tally’s automated credit card payoff tool can potentially make getting out of debt faster, easier, and more affordable. Being smart about paying off debt can mean saving money on interest and late payment fees.
Learn more about how Tally helps people manage their credit card debt.
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