President Joe Biden has extended the government's lifelines
that have helped homeowners keep their homes during the COVID financial crisis.
Many mortgage holders have been only too eager to put their
payments on hold, as allowed under the relief law from last March that also
brought you your very first stimulus check.
That mortgage forbearance — as it's formally known — was due
to run out, but when he took office last month Biden extended the relief for an
additional three months. On Tuesday, he tacked on three more months, allowing
homeowners who signed up last year to keep their payments paused for as long as
18 months.
Plus, if you haven't taken advantage of forbearance yet but
need some breathing room with your mortgage, you now have more time to sign up.
Here's what you need to know about the program.
How forbearance works
Forbearance doesn’t wipe out your monthly payments, it just
allows you to postpone them without getting hit by late fees. Because the
credit bureau reporting of overdue payments is suspended, you won’t take a hit
to your credit score for taking a break from your loan.
If you're not currently in forbearance but just got laid off
or have another reason to start deferring your mortgage payments, the president
has extended the enrollment window through June 30.
The relief is limited to the estimated 11 million homeowners
who hold federally backed mortgages, which make up the majority of U.S. home
loans. Those include:
- Loans sold to government-sponsored mortgage
giants Fannie Mae or Freddie Mac.
- Mortgages guaranteed by U.S. agencies including
the Federal Housing Administration (FHA loans), the Department of Veterans
Affairs (VA loans) and the U.S. Department of Agriculture (USDA loans).
Americans with government-backed loans also are protected by
a federal ban on foreclosures, which Biden is keeping in place until June 30,
the White House announced on Tuesday. That moratorium had been scheduled to
expire in March.
Once forbearance eventually ends
An estimated 2.7 million homeowners holding 5.35% of the
nation's mortgage loans are currently in forbearance, according to data from
the Mortgage Bankers Association.
If you're in that group, these are your options for making
up your missed payments once the program is finally brought to a close.
- Tacking them on at the end of your mortgage
term.
- Making additional payments — on top of your
regular mortgage payments — for up to 12 months.
- Agreeing to make a lump-sum repayment when the
home is sold or refinanced, or when the mortgage term comes to an end. A
Mortgage Bankers Association survey found this was the most popular option.
Alternatives to forbearance
Face it: Though the government has been very willing to
stretch out the mortgage freeze, the forbearance program will eventually wind
down and borrowers will have to pay the piper — or, in this case, the loan
servicer.
If you'd rather not keep delaying your eventual day of
reckoning with your mortgage, here are two ways to make your loan more
manageable and stay current on your payments.
1. Refinance to cut your monthly bill
You don’t need to keep deferring your payments to get some
relief from your mortgage bills.
The economic turmoil resulting from the pandemic has
resulted in the cheapest mortgage rates on record, meaning you're probably due
for a refinance that could slash your housing costs.
An estimated 16.7 million homeowners have the potential to
reduce their mortgage payments by an average $303 through refinancing, the
mortgage technology and data provider Black Knight said earlier this month.
Refi rates can vary widely from one lender to the next, so
it's crucial that you shop around. Get at least five rate quotes to find the
best rate available in your area and for a person with your credit score.
2. Ask for a loan modification
Most lenders and loan servicers have been willing to work
with homeowners during the pandemic. You might ask about a loan modification,
which would keep you in the same mortgage but with new terms that should be
easier for you to meet during this time of financial challenges.
If you fear you're at risk of defaulting, a mortgage mod
allows you to change one of the key features of your loan.
You might be able to negotiate a lower interest rate or
monthly payment, or the lender might be willing to shrink the balance remaining
on your loan.
Modification can come with administrative or filing fees.
You'd have to weigh whether those would be more expensive than the closing
costs associated with refinancing your mortgage.
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