5 Things to Consider When You Can't Pay Your Mortgage
The Coronavirus pandemic continues to be a novel experience with far-reaching repercussions. In addition to the devastating toll on peoples’ health, the virus has upended our daily lives, causing wide-spread economic disruption and unease for billions of people.
In the US, more than 26 million people have already filed for unemployment, and a $2 trillion government stimulus package is just the first step toward restoring solvency to people who are out of work and looking for answers. This is especially true when it comes to many peoples’ most significant financial obligation: their mortgage. According to the Boston Globe, “The homeowners skipping payments because of lost jobs or income represent 5.5 percent of borrowers with $651 billion in unpaid principal.”
In other words, if you find yourself struggling to pay your mortgage right now, you are not alone. Of course, the short and long-term consequences of defaulting on your mortgage can have far-reaching repercussions that are especially disruptive to your general and financial well-being. If you are experiencing financial hardship because of the COVID-19 pandemic, or even if you are just unable to pay your mortgage, there are options available to support you during this time.
Here are five things to consider if you can’t pay your mortgage right now:
1. EVALUATE YOUR BUDGET
Nearly a third of people don’t maintain a budget, and even the most fastidious financial planners may be working with outdated information. When things are going well, it’s common for “wants” to masquerade as “needs.” To maintain a healthy financial outlook, now is the right time to evaluate your budget, prioritizing critical expenses and identifying opportunities to save money. If you haven't before, now's the time to create a true and thorough budget. If you're comfortable leveraging technology to help you understand your financial situation, there are plenty of money management apps available that can help you pull together a budget.
2. REQUEST A FORBEARANCE
On March 27, the CARES Act was signed into law. Included in the bill is a provision offering a six-month mortgage forbearance for people negatively impacted by COVID-19. The guidelines apply to all government-backed mortgages, which covers approximately 65% of all mortgages. During these unprecedented times, all lenders have the same goal: they want to keep people in their homes, and mortgage forbearance options might be available even for loans not covered by the CARES Act. Like many organizations right now, lenders are short-staffed, leaving customers with extremely long customer service wait times. Therefore, if you are or think you might soon experience a financial hardship that prevents you from paying your mortgage, now is the right time to reach out. To attain a loan forbearance, contact your loan servicer directly to make the request. Unfortunately, this process isn’t standardized, and different loan providers will have different procedures for obtaining a forbearance. However, a mortgage forbearance comes with significant caveats that borrowers should consider before requesting a forbearance.
3. CONSIDER REFINANCING
For some borrowers, refinancing a mortgage can be a way to lower monthly payments while taking advantage of historically low interest rates. However, homeowners will want to rigorously vet this path before proceeding. Most prominently, refinancing is often contingent upon equity, with banks looking for borrowers to have between 10 and 20% equity before refinancing. This will restrict this option to those with home equity and those who can carry the immediate costs of refinancing. For instance, closing costs often range between 3-6%, which means borrowers will need significant cash-on-hand to take advantage of this option. Also, refinancing carries other costs, including appraisals, inspections, attorney fees, and other expenses. Of course, under the right circumstances, refinancing can be a compelling opportunity for borrowers to lower their monthly payments, making their mortgage payment more tenable and freeing up funds for other priorities.
4. SELL YOUR HOME
In the near term, selling your home may not be a right-now strategy for relieving your mortgage burden, as social distancing and stay-at-home orders related to COVID-19 will complicate this process. Even so, before the crisis, home sales were surging, with many moving off the market in just days or weeks. It’s unclear what impact COVID-19 will have on home sales moving forward, but if your mortgage is unsustainable, now is a great time to begin preparing your house for the market. Downsizing your space or moving to a more affordable area can relieve the financial pressures posed by your current mortgage payment. Therefore, while selling your home can’t provide immediate relief, it may be a compelling opportunity to stabilize your finances moving forward. This is particularly true if you find yourself underemployed after the pandemic passes.
5. SUBLET YOUR PROPERTY
Similar to home sales, subletting your property or harnessing your home for additional income through temporary rental services, like Airbnb, can be a way to generate extra income from your house that can help you make your mortgage payment. Undoubtedly, relying on renters can be fraught with difficulties, but it can be a helpful opportunity for some.
GET THE HELP YOU NEED
During times of global crisis, maintaining your mortgage payment is both incredibly important and uniquely stressful. If you need help navigating your options or finding the best path forward, our trained counselors are ready to provide support. In addition to HUD-approved housing counseling, Money Management International offers other free and low-cost services covering a variety of challenges.
If you are in need of assistance, please contact The Borrower Success Team at 866.550.8099.
Created by; Jackie Boies, MMI Senior Director, www.moneymanagement.org