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Homeowners with mortgages from Fannie Mae and Freddie Mac now have another option to defer payments during COVID-19
Thursday, July 16, 2020
- Business Insider
- The Federal Housing Finance Agency (FHFA) has introduced a new deferral repayment option for people with mortgages backed by Fannie Mae and Freddie Mac.
- If you pause mortgage payments due to the coronavirus, you can request to repay in one lump sum at the end of your loan term.
- You'll make one payment when your loan term ends, or when you sell or refinance the home.
- This repayment option doesn't increase your monthly bill or result in more owed interest, and it gives you time to save money for a lump sum payment.
- Servicers must provide this deferral repayment option for people with Fannie Mae and Freddie Mac loans beginning July 1, 2020.
You may have heard that you can request forbearance for up to a year if you have a government-backed mortgage and have been impacted by the coronavirus. In fact, maybe you've already enrolled with your servicer.
When you defer your government-backed loan, your payments are paused for 180 days. You can request an extension of up to another 180 days if you're still struggling after your initial forbearance period ends.
Pausing mortgage payments can be a huge source of relief for people who have lost work during the pandemic. However, there's been a lot of confusion about how and when you're expected to repay the delayed payments — depending on your lender's repayment policy, you could end up in a major jam later.
The Federal Housing Finance Agency (FHFA) has created a new deferral option for people with a loan backed by Freddie Mac or Fannie Mae, two government mortgage companies. The purpose of this deferral program is to eliminate confusion and make repayments more manageable for borrowers.
When your mortgage term ends, you repay the deferred amount in one lump sum
The premise of the FHFA's new deferral option is simple: When your loan term ends, you pay back the total deferred amount all at once, regardless of whether you sell, refinance, or pay off your home entirely.
If you have a 30-year mortgage with Fannie Mae or Freddie Mac and defer for one year during the pandemic, your loan term will still only last 30 years. At the end of the 30-year period, you'll repay the year's worth of payments you paused during the pandemic in one big payment.
If you sell your home or refinance before paying it off, you repay the deferred amount in one lump sum.
Lenders must offer this new deferral repayment option for Fannie Mae- and Freddie Mac-backed loans beginning July 1, 2020.
The new repayment method is better for many homeowners than other options
Prior to the new FHFA repayment option, lenders were enforcing various rules for how and when you had to pay back your deferred government mortgage payments. Many lenders were offering one or more of the following options:
- Repay the deferred amount in one lump sum once your forbearance period ends. This policy may seem unfair if you've lost work due to the coronavirus — if you couldn't afford mortgage payments for months, why would anyone expect you to be able to make months' worth of payments all at once?
- Tack the missed payments onto the end of your loan term. For example, if you defer payments for three months, your loan term switches from 30 years to 30 years and three months. Adding payments to the end of a term is a better short-term solution, but it means you'll be paying for a longer period of time and paying more in interest.
- Spread the deferred amount across the life of your mortgage so that your monthly payment increases. This option could make mortgage payments tight — possibly for years.
The FHFA's new repayment option removes plenty of confusion from the conversation. You now have the right to request a specific repayment method rather than leave it up to your servicer.
This deferral option lets you kick the bucket down the road. Now you can pay a lump sum in a few years (or maybe even a few decades), rather than in a couple months, which gives you more time to financially prepare.
Your monthly payments will also stay the same, and you won't pay more in interest as a result of coronavirus-related forbearance.
Homeowners with other types of government-backed mortgages or loans with private lenders still have to adhere to their servicers' rules about repayments. However, people borrowing through Fannie Mae and Freddie Mac finally have a little more control.