More than 3.5 million mortgage borrowers have requested forbearance — they need to weigh their options carefully.

How will I pay my mortgage?

That’s the question facing millions of Americans as stay-at-home orders have caused many people to lose their jobs or income. Lawmakers have stepped in to provide homeowners with a lifeline by requiring lenders to provide forbearance — a way to defer mortgage payments — to any mortgage borrower with a federally-backed home loan.

So far, 3.5 million mortgage borrowers have requested forbearance, representing nearly 7% of all mortgages nationwide, according to the latest data released Monday by the Mortgage Bankers Association, an industry trade group. That means millions of homeowners can now skip or make reduced monthly payments on the home loan for up to one year.

“While the pace of job losses have slowed from the astronomical heights of just a few weeks ago, millions of people continue to file for unemployment,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “We expect forbearance requests will pick up again as we approach May payment due dates.”

Calling your lender and requesting forbearance is just the first step in the process. “Forbearance is not forgiveness,” said Karan Kaul, a research associate at the Urban Institute, a nonprofit policy group, told MarketWatch earlier this month. “You still owe the money that you were paying, it’s just that there’s a temporary pause on making your monthly payments.”

Eventually, borrowers will need to work out a repayment plan with their lender. And borrowers need to be careful that they don’t agree to a repayment plan they cannot afford.

Fannie Mae FNMA, 0.89% and Freddie Mac FMCC, -0.31% put out guidelines on Monday reminding homeowners that they don’t have to make a balloon payment the end of their forbearance period.

“We want every homeowner who is struggling because of this pandemic to know they have mortgage options,” Fannie CEO Hugh Frater said in the statement Monday. “We do not require a homeowner to repay missed payments all at once at the end of the forbearance plan, unless they choose to do so.”

Freddie Mac CEO David Brickman similarly encouraged “homeowners facing hardship to work with their servicer to identify the plan that’s appropriate for their unique situation.”

With a balloon payment, also known as reinstatement or a lump-sum payment, a borrower would repay the entire amount they owed from the forbearance period all at once.

“It really isn’t helping somebody if they get a four-month deferral but have to make a lump sum payment, and they’ve been out of work for four months,” said Rick Sharga, a mortgage industry veteran and founder of CJ Patrick Company, a real-estate consulting firm. “That’s just deferring failure rather than helping somebody succeed.”

As Americans have requested forbearance, some have complained that their mortgage servicer offered a balloon payment option as a repayment option. But this isn’t the only way to pay back the money you owe.

Here are consumers’ repayment options after forbearance
For starters, borrowers can request a payment deferral modification. With this, the balance they did not pay during the forbearance period would be tacked onto the end of the loan. The duration of the loan would be extended — so someone who received forbearance for six-months on a 30-year mortgage would now be debt-free after 30.5 years.

Alternatively, a consumer can opt for a repayment plan where they would gradually pay off the money they owe in addition to their monthly mortgage payments. With this option, the duration of the loan would not be extended, but monthly payments would increase.

For those who are still facing financial trouble at the end of forbearance, they can reach out to their mortgage lender to request a loan modification. This would reduce the monthly payment amount for the loan.

“All those terms are negotiable,” Sharga said. “Be diligent, be steadfast and try and stand your ground.”

In most cases, the servicer will try to contact homeowners 30 days before the forbearance plan is scheduled to end to determine which repayment option works best for them at that time. Borrowers can also proactively request this information from their servicer.

Borrowers also can ask their servicer who owns their mortgage, because home loans are often sold to investors. “Knowing who the owner of the loan is will provide the borrower with information to research what options are available from that entity,” said Andrea Bopp Stark, an attorney with the National Consumer Law Center. Servicers must respond to these requests within 10 days, she said.

“If the servicer does not respond, the borrower should send another letter and seek legal assistance,” Bopp Stark said. “The servicer could be held liable for actual damages and up to $2,000 in statutory damages for a failure to respond.”