Although millions of Americans struggling to make their monthly mortgage payments because of COVID-19 have received relief through the Coronavirus Aid, Relief, and Economic Security Act, mortgage forbearance is only temporary. Set to expire soon, it could leave many struggling homeowners wondering what to do next. Enacted in March, the CARES Act initially granted a 180-day forbearance (or pause in payments) to homeowners with mortgages backed by the federal government or a government-sponsored enterprise such as Fannie Mae or Freddie Mac.
Some private lenders also granted mortgage forbearance of 90 days or more to financially distressed homeowners. So, what are affected homeowners to do when the forbearance ends? There are options, and it’s well worth contacting your lender to explore the best one for you. Here’s are four possible avenues to explore if you still can’t pay your mortgage once the forbearance period draws to an end.
1. Extend your mortgage forbearance
One simple option is to contact your lender to request an extension. Homeowners granted forbearance under the CARES Act can request a 180-day extension, giving them a total of 360 days of forbearance, according to the Consumer Financial Protection Bureau. The key is to contact your lender well before your forbearance expires. If you let it expire without an extension, your lender could impose penalties.
If you stop making your regular, scheduled payments, you also could incur a late mortgage payment on your credit, and that not only could impact refinancing or purchasing another property in the immediate future, but also subject you to foreclosure. Note: A forbearance simply delays payments, meaning they’ll still need to be made in the future. It doesn’t mean payments are forgiven.
2. Refinance to lower your mortgage payment
With mortgage interest rates at all-time lows, this could be a prime time to refinance your home. Be warned that refinancing could come with some big fees, however, ranging from 2 percent to 6 percent of your loan amount. But it could be worth it. A lower interest rate likely will lower your monthly payment and save you thousands during the life of your mortgage. Dropping your interest rate from 4.125 percent to 3 percent, for example, could save you more than $40,000 over 30 years, according to the Consumer Financial Protection Bureau. With tighter lending standards now prevalent, though, you’ll need to prove that you’re a good candidate for refinancing, meaning you’ll need a credit score of 620 or higher. As long as you’ve kept up your end of the forbearance terms, having a mortgage forbearance shouldn’t affect your credit score, or your ability to refinance or qualify for another mortgage.
3. Ask for a loan modification
Many lenders are offering a variety of programs like loan modifications to help homeowners under hardship because of the pandemic. A loan modification enables homeowners at risk of default to alter the terms of their original mortgage—such as the payment amount, interest rate or length of the loan—to reduce monthly payments and clear up any delinquencies. Loan modifications may affect your credit score, but not as much as a foreclosure. Some lenders charge fees for loan modifications, while others provide them at no cost.
4. Place your home on the market
Although it might seem like a difficult time to sell your home—with COVID-19 cases growing, unemployment rising and the economy on shaky ground—but it’s actually a great time to sell a house. Pending home sales jumped 44.3 percent in May, according to the National Association of Realtor’s Pending Home Sales Index, the largest month-over-month growth since the index began in 2001.
Home inventory remains low, and buyer demand has increased because many folks are hoping to jump on the low-interest rates. Prices are up, too. The national median home price increased 7.7 percent during the first quarter of 2020 to $274,600, according to NAR. So, if you can no longer afford your home and have built up plenty of equity, listing your home may be a smart move.