If your income has been negatively impacted by the COVID-19 pandemic, delaying or missing mortgage payments may seem like your only plausible option. However, this choice only leads to more problems down the line and can create serious repercussions for your finances and credit.
Fortunately, many lenders have found ways to help you in uncertain times by providing mortgage relief options. Whether you’ve been laid off, furloughed or asked to take a reduction in pay, here are some of the possibilities that can help homeowners impacted financially by the pandemic.
Top of To-Do List: Contact the Lender
Anyone who has experienced an income reduction due to the COVID-19 pandemic should contact their lender right away if they need mortgage assistance. There are several programs in place designed to help borrowers, but in order to participate, you’ll have to be proactive and reach out.
Due to the high number of people who may be contacting the same lender as you, persistence is the name of the game. You may have to call or request information more than once.
After you’ve spoken with your lender, request the details of the arrangement in writing, and keep a copy of the information for yourself.
Borrowers who have a mortgage loan through a federally backed entity like Fannie Mae or Freddie Mac may be qualified for up to 12 months of mortgage forbearance. (About 63% of all mortgages are from a federally backed entity.)
A forbearance is a pause in payments or a reduction in the payment amount. However, a forbearance doesn’t mean you can forget the debt you owe. You’ll either owe the missed payments at the end of the forbearance period or the debt will be added on the tail end of the loan.
Under their relief programs, Fannie and Freddie will not report forbearance delinquencies to the credit bureaus, and they are currently waiving late fees and penalties. They also offer loan payment modifications after the forbearance period.
Payment Deferrals and Payment Assistance
Some lenders are offering payment deferrals for a specific amount of time without penalties or negative impact to your credit. Other banks are offering payment assistance.
The terms vary from bank to bank, so contact the lender’s mortgage assistance department to learn more as it applies to your loan and situation.
Refinance Your Mortgage
Experts recommend refinancing your mortgage if you can save 1% or 2% on the interest rate.
However, given today’s volatile employment climate, it may make sense for you to refinance your mortgage so you’ll have a smaller payment amount due each month.
Should you consider refi before you get laid off? Yes, if it’s possible. It’s easier to get a mortgage refinanced when you can show employment, although it’s still possible to do it once you’re unemployed.
Another option for helping with mortgage payments is securing a home equity line of credit, better known as a HELOC. A HELOC is a flexible line of credit that functions like a credit card.
With a HELOC, you use only what you need, and you only make payments on what you borrow. While interest rates are low right now, a HELOC typically requires you pay several different fees, such as an application fee and loan origination fee.
Foreclosures and Evictions Halted
For those consumers in some of the most precarious positions with their mortgages, the federal government issued a stay of foreclosures and evictions for 60 days.
The announcement, which came on March 17, 2020, means you can’t be forced out of a home for nonpayment for at least two months. Even if you were behind before the pandemic began, you now have some additional time to catch up on your debt.
Lenders Are Helping
Everyone has been affected by the COVID-19 pandemic, and for some, the financial hardships may make it difficult to stay afloat with a current mortgage payment. Take comfort that lenders are working diligently to help, and ask for assistance.
By being proactive you can take advantage of options designed to protect your assets, finances and credit.