What to Expect When Performing a Mortgage Refinance After Deferral


    When the Mortgage Forbearance Program for COVID-19 Homeowners was first announced last year, I insisted we enroll. As a food and travel writer, I knew I was going to lose income. In the worst case scenario, where we relied solely on my wife’s income to pay the bills, we would have to cut expenses.

    The mortgage forbearance program would cut our biggest bill asap. With mortgage forbearance plans, a lender pauses payments for a period of time and for a given reason. In our case, it was six months and a global pandemic. The monthly payments are not awarded, only delayed.

    As it turns out, I kept around a third of my income and was able to attract new customers throughout 2020 with less financial losses than I originally expected. We actually saved money because we had less spending and the benefits of the CARES Act.

    When the six-month grace period was extended, we knew we didn’t need the protection. In the meantime, we were keen to refinance our mortgage to take advantage of record low interest rates.

    However, refinancing a mortgage comes with a variety of rules, documentation, and requirements, including paying at least three consecutive on-time payments first.

    In fact, forbearance and refinancing are both complex processes. One on the heels of the other: even more complicated. But it can be done.

    Here’s What To Expect When Refinancing Your Mortgage In Forbearance.

    End a mortgage forbearance

    To end the mortgage forbearance, our lender gave us two options. We could settle the defaulted payments in full or defer until the end of the mortgage.

    We went for the latter option and it sparked a number of mistakes that undermined our confidence in our lender and convinced us that we need to refinance to escape them.

    Our mortgage lender has not processed our forbearance request for two months. Meanwhile, on her instructions, we had resumed monthly mortgage payments.

    But the mortgage payments went on the deferred amount, not the balance. Our monthly statements showed that our payments were both late and non-executed.

    We called the mortgage lender weekly, spent hours on hold, or been transferred to different departments. A personable call center agent would promise to get to the bottom of things and call us back the next day.

    This wasn’t the first time our lender misapplied payments.

    Before we sent a check for an escrow note, I called for instructions to make sure the payment was being made correctly. I followed their instructions to the letter, but they applied that check to my director, not the escrow. Here they were again, messing up our payments – and possibly delaying the whole process by making it seem like we hadn’t made payments on time. After the deferral, you have to pay three months on time before you can apply for refinancing.

    At the end of our tether we filed a complaint with the Consumer Financial Protection Bureau. That caught their attention. Top Brass solved the problem, but we planned our escape.

    Would you like to refinance after forbearance? Shopping is worth it

    When our 3 month period was up, we used a comparison tool to select four mortgage lenders and then compared interest rates and loan terms.

    Three lenders had online home loan applications for mortgage loan sponsored by Fannie Mae and Freddie Mac. We entered our income, debts, and assets – all including retirement and bank balances, my wife’s student loan, and our car letter – and then clicked Submit. We received calls from these lenders within an hour.

    Here are the mortgage rates we were offered on a 30 year mortgage secured by Fannie Mae or Freddie Mac:

    1. M&T Bank: interest rate of 2.875%, effective annual interest rate of 2.998%
    2. Chase Bank: Interest rate of 3.375%, APR of 3.602%
    3. Citizens Bank: Interest rate of 2.625%, APR of 2.785%
    4. Local bank: Interest rate of 3.125 for a 30 year mortgage or 3% for a 20 year mortgage (These offers were made without checking the documents over the phone.)

    In either scenario, we would have to pay closing costs that have been estimated by lenders to be between $ 5,000 and $ 6,000. Some asked us to pay for a credit report or appraisal.

    Since the interest rate on our 30 year mortgage was 4 percent, refinancing wouldn’t save a lot of money every month. But lower monthly payments were no longer our main reason for refinancing our mortgage.

    We were fed up with poor service from our current lender. We needed a trustworthy mortgage lender, even if it would take about two years to recoup the cost of closing and start saving.

    Ultimately, we chose Citizens Bank because their new loan terms were better and we had both been customers for 10 years. Within a week of receiving mortgage loan offers, we committed to Citizens Bank to set our interest rate.

    Forbearance to refinance timeframes

    It was October 2020 when we got out of our grace period and January 2021 when we bought into Refis for comparison. We completed our new tariff at the end of January.

    Our new loan officer said we will close around April due to increased demand for refinancing and new home purchases. We didn’t hear for a long time, then there was a flood of requests for information, then we would close. In the meantime, all we had to do was make the mortgage payments on time and avoid new debt or changes in creditworthiness. Oh, and clear up the typo by our current lender that made it look like we owed $ 80,000 more than our home loan, which was shown on our credit report.

    On March 23rd, we received a message: Our loan had been moved to underwriting for initial approval. Due to the high volume, they expected the closing to take place 120-150 days after our first application.

    April became May. In the meantime, my wife has received a new job offer. If she changed employers before refinancing, we had to wait another 30 days due to her proof of employment obligation.

    The job offer lit a fire under our lender: hours after she informed the lender of the new job offer, our loan was conditionally approved.

    The bank needed us to confirm the new loan terms, including a trust deed for home insurance and city tax payments. We also had to confirm that our council taxes were currently paid in full, provide updated pay slips, and explain our extra income.

    My wife had to call a credit bureau and our current lender to make sure we hadn’t made late mortgage payments.

    In the end it took several calls, letters and confirmations, but on May 17th we had officially refinanced.

    We’re leaving the mortgage forbearance behind

    It took longer than I expected to get through the refinancing process from COVID-19 Forbearance. There were days when we had to give everything up and collect paperwork for our new lender or put everything on hold trying for the 27th time to clear up our mishandled account.

    At the end of the day, our mortgage payment is $ 100 less, but we save $ 50,000 over the life of the loan thanks to this lower interest rate. Getting away from a terrible lender I didn’t trust I could do right? That was priceless.

    Penny Hoarder Writer Lindsey Danis is a Hudson Valley, New York City writer who specializes in food, professional counseling, and personal finance. Her work has appeared in Business Insider, NextAdvisor, Greatist, and others.


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