7 Solutions for Homeowners Struggling With Their Mortgage

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7 Solutions for Homeowners Struggling With Their Mortgage

You are not alone if you are having trouble paying your mortgage. As of May 2021, one in every 12,700 residences in the US was under foreclosure, according to ATTOM. In Delaware, one in 5,854 houses is in foreclosure, compared to one in 5,535 homes in Nevada.

The coronavirus pandemic has caused an increase in unemployment and income loss. Please be aware that there are programs meant to provide mortgage assistance to borrowers if you think you might lose your house to foreclosure.

Mortgage Relief Options for COVID-19

For individuals affected by COVID-19, a moratorium—or postponement—on foreclosure-related evictions is in force until September 30, 2021, if your mortgage is supported by a government program.

The Departments of Housing and Urban Development, Veterans Affairs, and Agriculture have extended the enrollment period for which debtors may seek forbearance until September 30, 2021, for those who are looking to do so. In order to assist avoid foreclosure, the lender and borrower will agree to postpone the mortgage payments.

To find out whether your mortgage loan qualifies for the moratorium program, kindly contact your bank or mortgage service provider. Calling your loan provider should be your first course of action whether or not you are having problems making your mortgage payments due to the coronavirus. To maintain the most alternatives open to you, attempt to do this before skipping payments if at all possible. In this article, professionals outline several choices for when you’re having trouble making payments on time.

Key Takeaways

  • Due to COVID-19, both Fannie Mae and Freddie Mac are providing aid to customers who are struggling to pay their mortgages.
  • The first thing to do if you’re having trouble making your mortgage payments, whether or not it’s because of the coronavirus outbreak, is to get in touch with your lender.
  • There are several ways to modify your loan repayment so that the monthly installments are more manageable.

1: Request Mortgage Forbearance

As previously mentioned, Freddie Mac and Fannie Mae have published rules for mortgage forbearance in connection with COVID-19. That implies such people may lower or stop making payments during that period. Missing payments won’t lower your credit score since the credit bureaus won’t disclose any connected mortgage delinquencies. Lenders will work with clients to alter loans once the forbearance period is complete in order to decrease monthly payments if needed.

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2: Refinance to a Longer-Term Loan

One way to lower your monthly payment is to spread out your loan over a longer length of time. According to Al Hensling, president of United American Mortgage in Costa Mesa, California, refinancing to a loan with a longer term is the easiest method to lower monthly mortgage payments, particularly when cash flow is an issue.

It’s crucial to remember that your interest rate will rise. To counteract this, Matt Hackett, operations manager at Equity Now in New York, advises making greater installments to quicken the principle repayment process. Most mortgages do not include prepayment penalties (though you should definitely check yours).

A mortgage calculator may be a useful tool for creating a budget for these expenses.

3: Refinance to Change Your Interest Rate Terms

If you’re close to finishing your mortgage payment, you may want to consider refinancing to an adjustable-rate mortgage (ARM). According to Hensling, “Consumers increasingly understand the financial advantages an adjustable-rate mortgage might provide in the appropriate situations. A good example is a homeowner who has a $400,000 fixed-rate loan at 4.25% and pays $1,976.76 per month but plans to sell their house in the following three years.

According to Hensling, the homeowner may save $281.19 a month if they refinance into a hybrid adjustable-rate mortgage set for five years at 2.875%. The monthly payment would drop to $1,695.57.

The bulk of the monthly payments for a nearly-paid-off property go toward equity rather than interest, says WeBuyHouses.com CEO Jeremy Brandt. Although switching to an ARM may relieve short-term cash flow problems by lowering the monthly payment at the price of future payments, the monthly payments may eventually rise if interest rates start to rise.

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If you currently have an ARM, moving to a fixed-rate mortgage may not cut your current monthly payments, but it will prevent your payments from rising. This makes sense, according to Brandt, if current fixed rates are lower than the ARM interest rate or if you anticipate moving after the next three years. He does caution that if you’ve had an ARM for some time, the fixed rate you refinance into may be higher than your current rate, which might result in an increase in your monthly payment.

4:Challenge Property Taxes

According to Cara Pierce, a licensed housing counselor with the nationwide nonprofit organization Clearpoint Credit Counseling Solutions, if the value of your house has decreased, contesting your property tax may provide some financial relief. You should get in touch with the county tax assessor’s office in the county where the home is situated to find out what kind of documentation they need to demonstrate a decline in housing values, advises Pierce.

Pierce claims that this is a temporary plan, however. She forewarns that as property prices rise, so will property taxes. Be aware that having your house appraised may cost several hundred dollars.

5:Modify the Loan

If you need to decrease your monthly mortgage payment but are unable to refinance your loan, a loan modification may be an option for you. But it necessitates a hardship, not like a refinancing. According to Pierce, borrowers must demonstrate to the lender that they are unable to continue paying the usual monthly mortgage payment due to financial hardship. According to Pierce, there is a lot of documentation that has to be filled out and sent to the lender for approval throughout this process.

She advises homeowners to seek counseling from a HUD-certified agency in order to fully comprehend their choices and obtain assistance in contacting the lender. But not all lenders provide loan modifications, or they may only provide temporary ones, notes Pierce.

Both Fannie Mae and Freddie Mac are enabling homeowners to alter their loans after forbearance as part of their mortgage assistance programs connected to COVID-19.

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6: Get a Home Equity Loan

However, this technique only works if you have a lot of equity in your home, which implies that your property is worth a lot more than you owe on it. Getting a home equity loan may help struggling homeowners get help right away. Anthony Pili, first vice president and director of cash management at Orange Bank & Trust Company in New York, suggests that struggling homeowners think about using a home equity line to pay down a mortgage. “All closing fees for home equity lines are typically covered by banks. The closing cost savings may be utilized to accelerate principal repayment, according to Pili.

He continues by saying that because the minimum payment is often only the interest that has accumulated throughout the month, this method is quite beneficial for borrowers who have the self-control to pay more than what is required each month.

7:Get the Lender to Eliminate Private Mortgage Insurance

Eliminating the private mortgage insurance (PMI) might reduce your mortgage payments, depending on how much equity you have in your house. Pierce advises getting in touch with the lender to ask about lowering the mortgage insurance if you have at least 20% equity in the home. Although there may be exceptions to the two-year norm, she emphasizes that borrowers who typically don’t put 20% down are forced to have PMI for at least two years. The condition can be removed, for instance, if the homeowner made renovations to the home that raised its worth.

The Bottom Line

Don’t give up on your mortgage if you’re having trouble paying it off. You can manage your monthly mortgage payments and remain in your house with the aid of a number of alternatives.

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