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COVID + Credit: I Can't Pay My Mortgage. What Are My Options?

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Every homebuyer's nightmare is that you suddenly won't be able to pay your mortgage. Whether you're out of work and struggling due to the Coronavirus/Covid-19 pandemic or you're simply dealing with other financial challenges, there could be any number of reasons that you've fallen behind on your monthly payments. Assuming you've already done all you can to adjust your budget, here are some additional steps to consider if you find yourself suddenly unable to pay your mortgage.

Mortgage trouble due to Covid-19

If you've experienced a job loss or other financial hardship as a direct result of the Covid-19 pandemic and you are now unable to pay your mortgage because of that hardship, you may be eligible for relief.

Contact your mortgage servicer immediately, inform them of your situation and ask if there are any payment options available, such as a reduced monthly interest rate or halted interest payments. If your servicer is able to offer you a reduction on your mortgage payment or other accommodations, be sure to keep up with those agreed-upon terms.

If your mortgage is federally backed, you may be eligible for additional assistance. Federally backed mortgages are owned by the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration, Fannie Mae, Freddie Mac or a similar federal institution. Go to FannieMae.com or Freddie Mac.com to figure out where you should apply for assistance. You will need to follow the instructions directly on those websites to get relief, and the process is being updated frequently.

To be clear, homeowners cannot simply stop making mortgage payments - you'll need to contact your lender to work out a payment plan. Your loan servicer will determine whether you qualify for assistance and how you'll repay missed payments. Importantly, this plan will not forgive debt or provide you with condition-free cash, but will instead allow you to find an agreement that lets you work things out when you recover financially. This might include extending the term of your loan or just paying the loan's interest for an agreed-upon duration.

For more information, visit the Consumer Financial Protection Bureau's website for mortgage relief. However, if Covid-19 aid does not apply to you, there are still options available.

Refinance your mortgage

Do you know the ins and outs of your home loan? If not, start by reading your contract. If you have trouble determining the type of mortgage you have, you should reach out to the loan servicer. They are responsible for collecting your payments and crediting your account. Once you get a grasp on the type of loan you have, refinancing may be your best course of action.

One type of home loan that often causes trouble for people is the adjustable-rate mortgage. A mortgage with an adjustable rate starts off as a fixed-rate mortgage–often with tantalizingly low monthly payments and interest rates. After a certain number of years, however, the loan converts to an adjustable rate that is tied to fluctuating interest rates. If interest rates go down, so will your monthly payments (although the chances of this happening in the current environment are very unlikely). If they go up, expect your monthly payments to go up as well.

Thankfully, your contract should include a cap on exactly how much your payments may rise during a given period. Nonetheless, a sudden increase to this monthly payment can cause financial uncertainty.

If you have an adjustable-rate mortgage, find out if you can switch to one with a fixed rate. Check your budget to see what you can afford. Then, either negotiate with your lender or shop around quickly for another mortgage loan.

Be cautious, though. Some adjustable-rate mortgages include prepayment penalties, meaning the lender may charge you thousands of dollars if you try to refinance your loan in the first few years. You can find these details in your contract.

Determine whether you qualify for a government program

The Making Home Affordable Program was created to help homeowners make their monthly loan payments more affordable in the long term. The options include adjusting your interest rate, extending your loan term and forbearing your principal. Mortgage lenders across the country participate in the program.

If your mortgage is considered “underwater,” meaning you owe significantly more than the home is worth, the mortgage will automatically be evaluated to see if the principal can be reduced. Visit MakingHomeAffordable.gov to see if you are eligible for this arrangement.

Forbearance may help

There are some options that work best if you only need temporary help. For example, if you've fallen behind on your mortgage because you recently lost a job but you anticipate regaining employment soon, you may want to consider forbearance.

In this arrangement, you and your lender will work out an agreement whereby you stop paying your mortgage for a certain amount of time. When the agreed-upon period ends, you are required to make a series of partial payments for the months you missed, until you bring your account up to date. This is a smart option when you know you'll be back on your feet, but it doesn't address the issue in the long term.

If you find yourself struggling to keep up with mortgage payments, whatever the reason, help is usually available. You just need to know where to look. Reach out to your lender and consider your options carefully.

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