COVID-19 induced forbearance agreements enabling homeowners to temporarily defer making mortgage payments are ending. However, older homeowners may be eligible for permanent deferral along with more funds to age in place.
The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, empowered lenders of federally backed home mortgages to offer borrowers payment forbearance agreements. These agreements enabled borrowers to temporarily defer making mortgage payments up to 12 months. Additionally, many private lenders have voluntarily offered forbearance agreements to their borrowers with similar terms.
The terms and obligations are detailed in each forbearance agreement and should be clearly understood by each borrower. It is important to note that loan forbearance is not loan forgiveness. It is a temporary reprieve from the obligation to make mortgage payments. Further, it will not affect personal credit scores.
While these agreements provide welcome relief to great numbers of cash-strapped homeowners, repayment obligations resume at the end and may include:
- Payment of all deferred payments at once.
- Payment of deferred payments over a period of time.
- Loan term extended to include repayment of missed payments.
Forbearance Agreements Similar to Reverse Mortgages
In effect, forbearance agreements are like short term reverse mortgages in that they defer the obligation to make monthly payments. Unlike reverse mortgages, however, the relief is temporary and does not include other features exclusive to reverse mortgages.
Reverse Mortgages Provide Permanent Payment Forgiveness and More
Homeowners (60 and older) may be eligible to refinance to a reverse mortgage that defers all payment obligations permanently. Additional features include:
- No change of ownership – title remains in borrowers name, life estate, or suitable trust.
- Low and no upfront cost options – available for some programs
- Growing line of credit – the undrawn balance of the credit line grows (compounding monthly) at the same rate charged on funds borrowed.
- No maturity date – repayment not required until no borrower resides in the property.
- Non-Recourse loan – neither borrowers nor heirs incur personal liability. Repayment of loan balance can never exceed the property value at the time of repayment. If loan balance exceeds property value at time of repayment the lender and borrower(s) are protected by FHA insurance.
- Guaranteed terms – funding and loan terms cannot be frozen or cancelled as long as the loan remains in good standing. Borrower obligations are limited to:
- Keeping real estate taxes, liability insurance, and property charges current
- Providing basic home maintenance
- Living in the property as primary residence
Good For Some – Not For All
Reverse mortgages are unique programs designed to improve and extend retirement security primarily for those who want to remain at home to age-in-place. Because they are different, they require comprehensive education to ensure understanding and suitability for near and longer-term concerns.
Every situation is different. A reverse mortgage may, or may not, be a good fit based on individual qualifications, circumstances and needs.
To learn more, consultation with a Certified Reverse Mortgage Professional (CRMP) is recommended. CRMP’s are certified, experienced, and exam tested professionals pledged to strict observance of the Code of Ethics & Professional Responsibility of the National Reverse Mortgage Lenders Association, Washington DC. More information on reverse mortgages and a list of CRMPs is available on NRMLAs consumer website www.reversemortgage.org.
George Downey (NMLS 10239), is a Certified Reverse Mortgage Professional (CRMP) and the founder of Harbor Mortgage Solutions, Inc., Braintree, MA, a mortgage broker licensed in Massachusetts (MB 2846), Rhode Island (20041821LB), NMLS #2846. Questions and comments are welcome. Mr. Downey can be reached at (781) 843-5553, or email: GDowney@HarborMortgage.com