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What You Need to Know About Mortgage Forbearance

April 29, 2020

By Ernie LaRoche
Manager, Loan Payment Solutions, ESL Federal Credit Union

If you’re a homeowner and have been financially impacted by the COVID-19 coronavirus, there are options that can help you through this time. Mortgage forbearance is one of them.

Many financial institutions, ESL included, are providing financial hardship offerings that help alleviate financial burdens. Below we’ve outlined some key actions and things to keep in mind if you’re considering mortgage forbearance.

1. Contact Your Mortgage Lender

The first step to initiate a mortgage forbearance is to contact the financial institution that holds your mortgage. They will be able to review your account and discuss available options during this time. You will need to put a formal agreement in place with your lender in order to proceed. For ESL, this agreement is a verbal agreement, but that may not be the same at other financial institutions.

2. Understand the Conditions of Forbearance

A common misconception is that forbearance means forgiveness. A forbearance is a postponement or reduction in mortgage payments over a specific timeframe. Throughout the forbearance timeframe, interest still accrues on your loan, and will need to be paid back once your mortgage payments resume. “Forbearance” and “deferment” are often used interchangeably, though they are not the same. Forbearance specifically applies to real estate loans, such as mortgages, while deferment applies to other consumer loans such as personal loans or auto loans. While both allow you to postpone or reduce your payment, forbearance requires additional work on the lenders’ end when it comes to postponement, payment reduction, and resuming payments.

3. Identify the Best Repayment Option With Your Lender

There are often three repayment options once a forbearance term is completed. This should be worked out with your lender before the forbearance term is up. Specific policies will vary by lender. The three most common repayment scenarios include:

  1. Enter into a modification agreement:
    • The unpaid principle and interest during the forbearance period would be added to the principle balance;
    • The interest rate would not change (it would remain the same);
    • The monthly payment would drop (mostly a few dollars); and
    • The term would be extended based on the determined forbearance period.
  2. A lump sum payment. With this option, you pay a lump sum of all the principal and accrued interest that built up during the forbearance term.
  3. An increase to monthly mortgage payments. You can spread the amount of principal and accrued interest built up during the forbearance term and divide the amount across 6 or 12 months—this will increase your mortgage payment for those 6 or 12 months.

4. Stay Connected With Your Lender

Communicate regularly with your lender throughout the forbearance period. If you have any additional questions or any changes occur, be sure to let your lender know.

If you’re an ESL Personal Mortgage, Home Equity Loan, or Home Equity Line of Credit customer, please contact us at 585.336.1000 or 800.848.2265 to discuss forbearance, which includes:

  • 180 days forbearance of principal and interest (with the option of an additional 180-day period once the first is finished).
  • No negative impact to credit report or credit score as a result of the forbearance or payment relief.

We’re here to support you through this unprecedented time—and beyond.