It happens. You took on a mortgage because your income could handle it. Then along the way, life dealt you a card that suddenly turned your life around. You lost your job. Or your spouse lost his or hers. With so many people losing their jobs and so many businesses closing their doors due to the pandemic, more and more people have their lives turn for the worse.
If you are still paying for your mortgage and you cannot pay for it, for the time being, don’t fret. You are not alone. As of August 2020, 32% of Americans had missed making payments for their mortgage or rent. With millions of Americans going jobless in the middle of the pandemic, millions cannot pay their bills, mortgage, and rent included.
What Happens If You Can’t Pay Your Mortgage?
If you could not pay 15 days after your due date, you would be charged a late fee. After 30 days, your loan will go on default. By this time, your lender will report this to credit bureaus, affecting your credit score. But of course, your credit score is probably the least of your worries in the current situation.
After 120 days of your due date and you still haven’t settled your mortgage, the foreclosure process will begin. The lender will repossess your home, and you have to leave the property.
What Can You Do If You Can’t Pay Your Mortgage?
Call your lender immediately if you see that you cannot pay your mortgage. Check if they have temporary payment reduction or refinancing programs that you can qualify for.
Here are your options to avoid foreclosing your home.
Mortgage Forbearance
Under the CARES Act, borrowers with a government-backed mortgage may request forbearance. A forbearance allows borrowers to make reduced payments or no payments at a specific period. This is to give you some relief during a time of hardship.
Any government-backed mortgage loan is qualified for forbearance, including Fannie Mae or Freddie Mac loans, FHA loans, VA loans, USDA loans, and HUD-guaranteed Indian Home loans.
You can also take advantage of the following:
- Forbearance up to 360 days to give you more time.
- No additional fees or interests.
- No need to prove hardship.
- No foreclosures until December 31.
- Your deferred payment will not be reported to the credit bureau and will not affect your credit score.
You can request for termination of forbearance under the CARES Act at any time. After the forbearance, you have the following options to make up for the missed payments.
- Pay in full.
- Enroll in a repayment plan and spread the missed payments over a certain period.
- Loan modification.
- Pay the missed payments at the end of the loan term.
You can still seek forbearance from your lender if you do not have a government-backed mortgage loan.
Loan Refinancing
A mortgage refinance allows you to take a new loan with lower interest rates or longer payment terms to pay off your mortgage. You can reduce your monthly payments by choosing a loan with a longer payment period. However, a longer payment period means an increase in your interest rate. Another option is to choose a loan with lower interest rates. You can choose to refinance to an adjustable-rate mortgage or a fixed-rate mortgage.
Switching to a fixed-rate mortgage can help stop your payments from growing, but it may not lower your monthly dues. Switching to an adjustable-rate mortgage is recommended if you are nearing paying off your mortgage.
Loan Modification
A loan modification is an option if a loan refinance is not viable for you. A loan modification can help lower your monthly mortgage payments. However, to qualify for one, you must prove to your lender that you are undergoing hardship. You need to submit documents to your lender as proof that you can’t make your payments due to a financial hardship you are going through. Your lender will then review the documents before approval.
Some federally backed loans such as Fannie Mae and Freddie Mac allow borrowers to apply for a loan modification after their forbearance.
Home Equity Loan
A home equity loan, also known as a second mortgage, can help if your home is valued at a much higher price than what you have left in your mortgage. The loan amount is usually based on the difference between the property’s market value and the remaining balance. They work just like your regular mortgage, where you will need to pay fixed, monthly payments. Like mortgages, the property may be sold if payment is not made to cover the remaining debt.
When it gets too tough that you feel like you cannot cover all your bills, do not simply give up. Call your lenders and check your options. These are hard times, and your lender may have programs to assist their borrowers in a rough spot due to the pandemic.