What COVID-19 Means for Your Mortgage
Since COVID-19 emerged in the United States, there’s been a layer of uncertainty surrounding many aspects of life. One thing that’s been a major concern for many is regarding mortgage payments and whether or not there is going to be any relief. Since hundreds of thousands of people were forced to shut the doors to their business, millions of Americans have filed for unemployment. In fact, over 14% of Americans are currently unemployed—one of the highest rates of unemployment since the Great Depression. Luckily, all hope isn’t lost. There have been a number of relief programs created by the federal government to try and help mitigate some of the loss experienced nationwide right now. In this article, we’ll dive into what COVID-19 means for your mortgage, how to get relief, and what to do if you’re considering buying a home or refinancing right now.
COVID-19 and Mortgages
As coronavirus continues to plague the nation, many people are having to deal with the repercussions of the shut-down. Financially, millions of Americans are struggling to find ways to pay their mortgage and bills. While we recommend trying to keep paying your mortgage for as long as possible, there might come a time when it’s just not realistic anymore. Wait until then. There are millions of families that need immediate support, so continuing to pay your mortgage while you can will better allow those in need to get relief. None of what’s happening is mortgage forgiveness, so regardless of what you do, you’ll still have to pay your mortgage eventually. However, when the time comes where you can’t afford to pay your mortgage and things you need for daily life, food, transportation, and any bills, there are options. Instead of stopping payments all together, try to make partial mortgage payments so you won’t face high charges once the COVID-19 relief wears off. If that doesn’t work, you can look into mortgage forbearance.
What’s important to understand is that during his time, forbearance can be extended more than usual. A typical forbearance is when you get a break from paying your mortgage payments for 3 months. You’ll still have to pay this money once the forbearance ends, but there are ways to spread it out, so you’re not overwhelmed. Due to the COVID-19 pandemic, you’re legally able to extend your forbearance for longer than usual.
In conjunction, the federal government cut interest rates in the hopes that I would help keep the economy stimulated. As of now, there has been information that says the Federal Reserve will keep the federal funds rate near zero until they’re confident that the economy is back on track to stabilizing and employment rates return to pre-pandemic percentages.2
Understanding Your Mortgage Relief Options
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed on March 27, 2020. With this Act, over $2 trillion in economic relief packages were set to be delivered to the American people impacted by the devastating effects of COVID-19. For some of us, this meant getting a $1,200 stimulus check deposited into our accounts and that was it. However, the CARES Act provides more relief than a one-time deposit into your account—it also offers mortgage relief options for homeowners.
If your mortgage is owned or backed by the federal government, you will not face foreclosure for at least 60 days after March 18, 2020 and if you are suffering from financial hardship, you’re eligible to request a mortgage forbearance for 180 days.1 To better understand what this means, you first need to make sure you fully understand who owns or backs your mortgage. Most mortgages are covered, but some may not be. If you need to request a mortgage forbearance, it means that you can temporarily suspend, or reduce, your monthly mortgage payments for a period of time.1 As we mentioned before, this is very different from mortgage forgiveness, as you’ll still need to repay your mortgage after the forbearance ends, so it’s more of a last resort while the economy is unpredictable.
To find out whether or not your mortgage is owned or backed by the federal government, contact your mortgage lender or your state government.1 If you used a private lender, you will not be eligible for the above assistance. If you’re not covered under this relief packages, there may be other options for you. The best thing to do is to contact your servicer directly and discuss your options. Private lenders and servicers will likely have individual forbearance options for you during these times, however you should always make sure you fully understand the implications of your choices before moving forward with alternative payment options. In addition, state governments have outlined their own mortgage relief plans, some of which have suspended payments for 30-90 days. Talk to your servicer or contact your state government to find out more.
After forbearance ends, you’ll have a few options in regarding paying back your mortgage. You can either provide payment via a lump-sum, increase your monthly payments until the difference is paid, or add on a lump-sum payment at the conclusion of your mortgage.1 Again, all of these depend on whether or not your backed by the federal government, state government, or private lenders so you’ll need to make sure and fully understand your specifics before making a decision.
Buying a Home Mid-Pandemic
If you’re looking to buy a home right now, you’ll have to look a little harder than usual. The number of home listings on the market has declined by 15% as many people don’t want to risk change in the middle of a pandemic.2 However, that doesn’t mean that you won’t be able to find something. There are still listings available and some may say that this is actually one of the best times ever to buy a new home. With mortgage rates close to 3%, if you sign up for a 30-year fixed mortgage rate you’ll end up saving thousands of dollars over the years to come. Now, this is only a good move if you have the funds to do so. You shouldn’t buy a new home just because of low mortgage rates on their own—you should be financially stable. If you can buy a home, great! Contact the professionals at First Star Realty to learn more about the homes available in Norwest Arkansas today. While it might take a little longer to find your dream home, it’s still possible—even mid-pandemic.
Refinancing Options
If you already own a home but want to take advantage of lower mortgage rates, you have the option of refinancing. Refinancing allows you to essentially open a second loan to pay off the first, thus giving you access to whatever the reduced rates are. With such a significant drop in mortgage loan rates, refinancing could be a smart move right now—especially if you still have a large amount of money to pay off of your mortgage. Talk to different lenders to better understand your options and make sure that refinancing is the best course of action for you to take. Keep in mind that with COVID-19, there are a lot of market swings. Nobody really knows what’s going to happen next month, next week, or even tomorrow. This can cause a big fluctuation in rates depending on the day. If you make a change when the rates are low, be prepared to pay a larger upfront fee to lock in the discounted rate. You should also be prepared for long wait times as many lenders are completely overwhelmed with refinancing requests.
Before making the decision whether or not to refinance, think about your future plans. Even with the uncertainty happening, how long do you plan on being in your current home? If you see yourself moving after 5-10 years, consider looking at an adjustable rate mortgage (ARM). You should also consider how long you’ve had your current loan for. If you haven’t had your loan for a long time, it might not make sense to refinance. If you’re not sure, talk to your lender or a refinancing office to learn more about your options.
At First Star Realty, we’re committed to providing five-star realtor services to Northwest Arkansas. Our clients always come first, which is why we’ll be with you through the entire buying or selling process. If you’re interested in learning more information about how COVID-19 affects your home buying or selling process, or you’re ready to buy or sell a home, contact us today. Our team of highly seasoned real estate professionals is dedicated to providing exceptional, personalized service to all of our clients. Call us today at 479-267-1600 or fill out a contact form on our website.
Sources:
1 https://www.forbes.com/sites/zackfriedman/2020/05/09/covid-coronavirus-mortgage-relief/#1d339e41f77c
