Due to the uncertainty caused by the coronavirus pandemic, some Americans have struggled to stay on top of their mortgage payments this year.
Since mid-March, a total of 36.5 million Americans have applied for unemployment, according to the latest numbers from the Labor Department. So it is natural if many people are wondering what they should do if they are unable to manage housing costs.
If you are a homeowner finding it challenging to keep up with your mortgage, here are some options for managing your home loan during the pandemic.
Federal mortgage forbearance
Mortgage forbearance is when mortgage lenders allow you to suspend or reduce your payments if you are in a financial bind.
In issued guidance on relief options, the Consumer Financial Protection Bureau (CFPB) explains that the federal CARES Act passed in March grants homeowners with federally backed mortgages to request a forbearance for up to 180 days, with the option for a 180-day extension.
Federally backed loans include those from Fannie Mae, Freddie Mac, FHA, VA, or USDA loan.
Lender-specific mortgage forbearance
If you’re not protected for a mortgage forbearance under the CARES Act, you may still be able to refinance your loan if it’s through a private lender.
“The forbearance program is obviously designed to deal with the characteristics of this pandemic,” Ed DeMarco, president of the Housing Policy Council (HPC), told Bankrate. “A forbearance is a normal tool in the toolkit, it’s been used with some regularity with natural disasters, or any temporary emergency which disrupts normal living and income.”
According to Bankrate, many lenders are offering forbearance and loan modification options for borrowers with privately-owned mortgages. Additionally, lenders are offering homeowners various repayment options, like adding what’s owed to the back of the loan, so borrowers are not faced with a large lump-sum amount.
“The congressional mandate and CARES Act only covers loans owned by the government, loans that don’t meet those qualifiers aren’t guaranteed a forbearance. However, the forbearance take-up rates for non-federally backed loans is pretty meaningful,” DeMarco said.
Refinancing your mortgage
Refinancing your home loan may allow you to decrease your monthly payments by obtaining a new loan at a lower interest rate.
Record-low interest rates spurred by the pandemic may make now an advantageous time to consider this option.
According to experts, Millennials have especially went this route amid the crisis. “The Federal Reserve cut its target interest rate to near zero in March, causing interest rates to drop and giving savvy Millennial homeowners the opportunity to refinance to more favorable rates,” Joe Tyrrell, chief operating officer at Ellie Mae, told Forbes.
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