Some Americans have had trouble paying their mortgages amid financial hardship due to COVID19. That's why the federal government passed the CARES Act to offer relief for homeowners in the form of mortgage forbearance. One side effect of allowing borrowers to defer mortgage payments, however, is the broader impact on the mortgage market.
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Loan servicers and providers still have a responsibility to pay their investors, even when mortgage payments stop coming. Whether this creates a more significant problem for the mortgage industry in the long-term remains to be seen. In the meantime, you should understand what options you have for managing your home loan during the pandemic.
Mortgage relief options for those impacted by coronavirus pandemic
There are a number of ways you can seek relief for mortgage loans during the coronavirus outbreak, including:
Federal mortgage forbearance. The federal CARES Act allows you to defer payments on federally-backed mortgages for up to 180 days, with the option to request a 180-day extension. Federally-backed loans include those owned by Fannie Mae and Freddie Mac, as well as FHA loans.
Mortgage refinancing. Refinancing loans may allow you to get a new loan at a lower interest rate and potentially reduce your monthly payments. This may also be a good option if you'd like to go from an adjustable-rate to a fixed-rate loan. If you're interested in going the refinancing route, use Credible's free tool to compare rates from a variety of lenders to see what will save you the most money.
Lender-specific forbearance. If you don't have an eligible mortgage for federal forbearance under the CARES Act, you may be able to get mortgage relief from your lender.
A number of mortgage lenders have introduced mortgage relief programs to help struggling borrowers affected by the coronavirus. Get your mortgage questions answered and see what lenders have to offer right now via Credible.
Reverse mortgage relief. If you have a home equity conversion mortgage, also known as a reverse mortgage, the FHA allows you to put payments on pause for 180 days, with a possible 180-day extension.
The CARES Act also includes a special provision protecting you if you're in foreclosure or are facing a foreclosure proceeding. Under the Act, mortgage lenders and loan servicers are blocked from initiating a foreclosure sale for at least a 60-day period that began on March 18, 2020.
How coronavirus has impacted mortgage rates
Mortgage rates began declining in early March as the Federal Reserve announced that it would cut the federal funds rate to near zero. Though mortgage rates don't follow the federal funds rate as a benchmark (instead, they're based on the 10-year Treasury yield), the Fed's decision has had something of a trickle-down effect.
Currently, mortgage rates for a 30-year fixed-rate loan are hovering at 30-year lows. If you're in the market to buy a home or refinance an existing mortgage, that's good news, assuming you're able to qualify for a home loan.
The rate cuts, along with other quantitative easing measures taken by the Fed, could also give lenders and loan services a boost by encouraging liquidity in the mortgage market.
What to do if you need help with mortgage payments
If you're struggling with financial hardship related to the coronavirus, it's important to be proactive about managing mortgage payments. Here's a simple checklist to follow for what to do next.
Contact your loan servicer. Your lender can tell you whether your loan is eligible for mortgage forbearance and if not, what other mortgage relief options they might offer.
Check interest rates. Refinancing could make your mortgage more affordable but it pays to run the numbers first. Doing the math using a refinance calculator could help you gauge how much money you may be able to save by lowering your mortgage rate.
Talk to a financial or housing counselor. After contacting your lender and confirming you don't qualify for mortgage relief, consider talking to a financial or housing counselor to explore other possibilities. For example, you might be able to get a loan modification to restructure your loan terms so your payments don't lead to more financial hardship.
Get non-mortgage debt under control. If you have other debts, such as student loans or credit cards, look at ways you can reduce those payments as well so you can prioritize paying the mortgage. A credit card balance transfer, for example, could give you time to pay off credit card balances at a low-interest rate. You may also be able to put student loans in a temporary deferment or forbearance period and pause those payments.
You should also consider what you may need to do in a worst-case scenario. For example, that might mean selling the home, taking out a personal loan, agreeing to a short sale, or requesting a deed in lieu of foreclosure. Those solutions aren't ideal but they can help you get out of a mortgage when you have trouble paying.