Coronavirus mortgage relief is available — here’s what to do if you can’t pay on time

Mortgage refinancing can offer financial breathing room if you've been affected by COVID-19. (iStock)

The COVID-19 pandemic has left 22 million Americans unemployed as stay-at-home orders result in multiple business closings. If you've lost your job, or if you're still working but earning less because of a reduction in hours, you may be wondering how you'll be able to continue making your mortgage payments. Mortgage relief programs could help you navigate this difficult financial time.

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Mortgage relief options during the coronavirus crisis

There are several things you can do to avoid defaulting on your home loan -- and potentially triggering a foreclosure proceeding -- if you're worried about keeping up with your mortgage payments.

Reach out to your lender first

If you're up to date on your mortgage now, it's important to keep it that way, and talking to your lender can help.

They may have a mortgage relief program in place designed to help borrowers who are struggling. For instance, you may be able to temporarily stop making payments for a set time period.

WHAT HAPPENS WHEN YOU HAVE DEBT IN COLLECTIONS?

"Most banks offer some sort of mortgage forbearance plan," said Andrew Helling, a licensed real estate agent and founder of REthority.

During a deferment or forbearance, interest accrues on your loan but you won't be responsible for making payments. You also won't be charged any fees and your credit score won't suffer because of late payments.

Consider refinancing your mortgage

Refinancing your existing mortgage could help to lower both your interest rate and your monthly payment.

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You may be wondering, should I refinance my mortgage now? It's a good question to ask, considering that the Federal Reserve has cut interest rates to zero.

If you're considering a refinance loan, do some rate shopping to see how much you could potentially save. Compare 15-year mortgage rates today with 30-year mortgage rates today and calculate your estimated monthly payment for each type of loan to see which one is most affordable for your budget.

Consider a loan modification

A loan modification allows you to renegotiate the terms of your existing home loan, versus refinancing with a new mortgage.

For instance, you may be able to change your mortgage term, obtain a reduction in your interest rate, or shift from an adjustable interest rate to a fixed rate. Loan modifications can make payments more affordable but depending on how your mortgage is restructured, it could increase your overall interest costs.

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Helling said mortgage modification is usually the most flexible option in a situation like the Coronavirus crisis. "Under a modification, a lender will either spread out payments over future periods or add additional months to the life of the loan."

Mortgage forbearance

The federal CARES Act includes a key provision to offer financial relief to homeowners who have federally-backed mortgage loans. The Trump stimulus mortgage guidelines make it possible for you to pause payments to your loan for at least 180 days. You can also request an extension for an additional 180-day forbearance period.

How to request forbearance mortgage relief

If you're interested in forbearance for your mortgage, you'd need to reach out to your lender to discuss whether it's an option.

Currently, the CARES Act extends this relief to homeowners with federally backed mortgages, including FHA, VA and USDA loans as well as loans owned by Fannie Mae and Freddie Mac. If you have a conventional or jumbo mortgage loan that isn't federally backed, you should still connect with your lender to see if they're offering any forbearance or deferment options.

When requesting forbearance under CARES Act guidelines, be prepared to explain to your lender why you can't pay and how long you expect to be unable to pay. Your lender may also ask about your financial situation, including your income, debts, and any assets you have.

How forbearance works

If your request for mortgage forbearance is approved, you'll have 180 days without mortgage payments. No fees or penalties apply during this time and you can only be charged the interest you were already scheduled to pay, based on your loan's amortization schedule.

It's worth noting, however, that this is not free money, Helling said. "You'll need to pay back the amount you've deferred, though those terms will be determined by your lender."

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Depending on your lender, these payments may be added to the end of your loan term or the mortgage itself may be modified to reflect what's owed. The lender could also require you to pay any missed payments in one lump sum.

A forbearance could offer mortgage relief in the short-term but consider the long-term financial impact. If the payments are added to the end of the loan term, it'll take you that much longer to pay off the home. Having to pay a lump sum could put a strain on your finances if you're scrambling to come up with the cash. And if your mortgage terms are modified, you may end up with a higher monthly payment than what you had before the forbearance took effect.