Hey Cora: A friend told me that because of the pandemic, I don’t have to make my mortgage payments right now. Is that true? And will it go against my credit rating? Signed,
Still Working From Home
Dear Still Working,
No, no, no, no NO! This is not true. And yes it will go against your credit rating. Let me give you just a little information on how this works, because it’s misinformation like that can really cause you a problem.
Mortgage companies, like Wells Fargo, First National Bank Alaska, Alaska USA Mortgage and others that sell their loans to servicers, have a budget for a small percentage of mortgages to have problems and some to default all together. But with the current unemployment numbers, it’s going to very difficult for banks and mortgage service companies to get to everyone that
My advice, MAKE YOUR MORTGAGE PAYMENT if at all possible.
Okay, now let’s talk about if you aren’t able. Call them ASAP. Call them and stay on hold if that’s what isrequired. Some of them are allowing you to communicate with them via their web site just to be of help to you. There are several ways that they can help. One is a forbearance. Forbearance is not
Forgiveness! Forbearance is a legal term meaning “patience”. The bank will be patient with you until this time passes. But once the time is passed, it doesn’t mean that you just pick up where you left off and start making your payments again.
For example: You call the bank and they give you a 4 month
forbearance. Yeah, I can live for FREE! Right? Wrong! This means that once the 4 months is over, you have to pay it all in one lump sum, right there on the spot! So, if your mortgage payment is $1000 per month after 4 months, that amount you owe will be $4000, plus and fees or late charges. And they
would want it right then, there is no more grace period.
Now you may have these funds to catch you up and that would be great, but if you don’t, this is when you can ask for a “loan modification” or sometimes called a “work around”. The bank or mortgage company would take that lump sum and put it on the back of the loan.
Here is an example: You have a 30 year mortgage. You have only 15 years left on that mortgage. Then this happens, you temporarily lose your job because of a horrific, stupid, dumb, ornery, deadly, unfeeling virus! Four months later you go back to work and can start making your payments again! But what do you do when the bank says “we want all back payments right now, within 30 days, or we will start foreclosure proceedings”. Ask for a loan modification and ask them to put this on the back of the loan as a separate lien. This would mean that in 15 years, when you make that last payment – you still will owe $4000. OR when you sell the house (by calling me of course) and you get the payoff from the bank, there will still be another lien on the property for this extra $4000, let’s just call it virus money!
You would need to remember that this will still need to be paid when you sell the house. Usually, banks don’t charge interested on this part, it just sits back there waiting for the loan to be paid off, either by time or by sale. Sometimes there are fees to doing this. Make sure you know what they are and how much this is actually going to cost you. If you only owe $4000, it might be better to borrow the money from your parents or something like that than to pay the extra fees to slap this on the back of the loan.
These are the things I want to leave you with:
1) If you cannot make your payment, call your lender, or write them, email them or in some way communicate. They can usually give you options.
2) If it’s going to take months to resolve this issue of being unable to make your payment, ask for a Forbearance, but remember that is not Forgiveness! You will still owe this money
3) After forbearance is over and you can’t make the back payments, ask for a loan modification to put the balance of the late payments on the back of your loan.
4) Remember that you still owe the amount of the forbearance plus and fees at the end of the loan or when you sell.
5) Be honest with your lender, let them know what you can do and what you cannot do.
Let’s hope this ends quickly. I miss of you very much, and though I am able to communicate with you in this way, I miss having coffee with you, I miss seeing you in the store, I miss giving and receiving hugs and laughing with all of your over the silliness of the day, I miss human interaction – I miss you! Be well
and remember if you need advice, or want to purchase of sell a home, please call me.