Our Guide to Mortgage Relief Programs and Refinancing During COVID-19
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The COVID-19 Pandemic is creating unique challenges for us all. While we can get through it together, for many of us, shelter-in-place orders have led to mass layoffs and serious financial struggles. If that applies to you, there are ways to get help. Both the federal government and private lenders are providing mortgage relief programs to get you through this trying time.
The pandemic has also created opportunities for refinancing your mortgage. If you’re in a position to do so, now might be the perfect time. Here’s how to get the help you need to get back on your feet and maybe even lower your interest rate in the process.
5 Quick Steps to Take Now:
Whether you’re struggling right now or trying to plan long term, start with these five moves:
- Get mortgage help through the CARES act: Government-backed mortgages qualify for 180-days of loan forbearance.
- Contact your mortgage servicer: Struggling to make your mortgage payment? You may still qualify for payment forbearance with a private loan.
- Create a plan: Know how your new payment plan works and how you’ll repay after the forbearance period ends.
- Evaluate your interest rate: Now is the time to save some cash. Compare your interest rate to current mortgage rates to see if you’re getting the best deal.
- Refinance: Refinancing may help you save money in the long run. Compare your options.
Mortgage Relief Programs Due to COVID-19
If you’re struggling to cover your monthly mortgage payment right now, you have options to get help. Both the federal government and private lenders are offering payment deferrals and other specialized plans for homeowners impacted by COVID-19.
Guaranteed Federal Benefits
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act has several provisions related to mortgages. However, to qualify, your mortgage must be federally backed or held under:
- Freddie Mac
- Fannie Mae
- Federal Housing Administration
- United States Department of Agriculture
- Veterans Affairs
If you're not sure, ask your servicer if you qualify, or check online to see if Freddie Mac or Fannie Mae own your mortgage. If you qualify, you can request loan forbearance for up to 180-days. You can also ask for an additional 180-days of forbearance with a one-time extension.
Mortgage loan forbearance allows you to temporarily defer mortgage payments, or pay less, without incurring late payment fees or hurting your credit.
The CARES Act also imposed a moratorium on foreclosures until May 17, 2020 for qualified loans. Until then, lenders and loan services can’t begin a judicial or nonjudicial foreclosure, and they can’t finalize foreclosure sales.
Options for Mortgages That Don’t Qualify for CARES Act Protections
If your mortgage doesn’t qualify for forbearance under the CARES Act, your loan servicer may still offer hardship options, including mortgage loan modifications or loan forbearance.
For example, the Wells Fargo mortgage relief program allows you to suspend mortgage and home equity payments for three months (and up to six months with an extension). JPMorgan Chase is offering a similar 90-day forbearance.
You can ask your loan servicer about the relief options it’s offering. There are also roundups of mortgage servicers’ options online, such as these from the American Bankers Association and NerdWallet.
Some states are also offering mortgage relief programs, including suspension of mortgage payments, foreclosures, and evictions. Contact your local housing authority for details and the steps needed to apply.
The Dangers of Mortgage Loan Forbearance
Opting to defer mortgage payments could free up cash now, but there’s potentially a big risk later.
Some servicers may ask you to make a lump-sum payment for all your missed payments once the loan forbearance period ends—which might not be possible for many borrowers. If you can, try to negotiate a better alternative with your servicer, such as adding the missed payments to the end of your loan term. Or, spreading out the amount with a payment plan.
If you make property tax and insurance payments into an escrow account with your mortgage payment, your servicers may cover the amount and ask you to repay it over time. If not, you’ll have to figure out how to make those payments or reach out to your creditors to ask about options.
What the Federal Reserve Rate Cut Means for Mortgages
For some, the coronavirus pandemic and resulting changes in the economy may present an opportunity. For example, the Fed rate cut in March could push down mortgage interest rates, making buying a home more attractive.
Whether or not home prices drop continues to be a mystery, though. While a recession might lead to drops in some areas, the pandemic also impacts homebuilders’ supply chain and workforce. As a result, a lack of buyers might be matched by a lack of homes, leading home prices to remain largely unchanged.
However, for current homeowners, the lower interest rates could present an opportunity to save money by refinancing.
Refinancing Could Save You Money
Whether refinancing makes sense largely depends on your current interest rate, the rate you can get if you refinance, and how long you plan to stay in the home.
While benchmark interest rates have fallen, lenders are also tightening up their underwriting standards, and qualifying for the lowest-available rate could be more difficult.
If you can get approved for a lower rate, you’ll also want to look at the closing costs for refinancing. These may be similar to the price you paid when you first took out the loan—about 2% to 5% of the loan.
Then, compare your monthly savings from refinancing to how much you’ll pay in fees to determine how long it will take to breakeven. If you’re planning on staying in the home for at least that long, refinancing could be a good option.
Today’s low rates may also make it a good time to refinance with a fixed-rate mortgage if you currently have an adjustable-rate loan. Even if you don’t save a lot of money, you could lock in a low rate now and won’t have to deal with the risk of rising rates in the future.
Responding With Your Complete Financial Picture in Mind
Whether you’re looking for ways to cut back and save money or put off payments, or have the resources to take advantage of potential opportunities, keep the big picture in mind. Consider the pros and cons of different choices before taking action and think about how your choices can impact the rest of your finances.