Mortgage borrowers struggle to get out of COVID-19 forbearance – Here’s how to get back on track

Many mortgage borrowers are still abstaining from COVID-19. Here’s how to get back on your feet. (iStock)

Mortgage forbearance has proven to be a vital lifeline for many homeowners during the COVID-19 pandemic. Under the CARES Act, many mortgagors were eligible for up to 18 months of forbearance. But as life begins to return to pre-pandemic “normal”, borrowers are struggling to catch up on their mortgage payments.

More than a third (35%) of mortgage borrowers who went into forbearance during the pandemic still are, according to one New York Federal Reserve study. Low-income borrowers and first-time buyers are most likely to be stranded for longer periods, having difficulty resuming their monthly payments.

Read more about the implications of long-term forbearance below, with tips on how you can get out of mortgage forbearance by refinancing, downsizing, or saving. If you’re ready to quit forbearance, Credible’s online marketplace can help you find the best mortgage rates for you.

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What happens when the mortgage is forbidden?

Mortgage forbearance allows borrowers to suspend their monthly payments without becoming delinquent, but that is no forgiveness.

You still owe the payments to your mortgage manager and interest accumulates on the balance during this period. This adds to the long-term cost of your mortgage, which is why forbearance is more of a safety net than a financial strategy.

In addition to making your mortgage more expensive over time, some home loans that are unsecured by Fannie Mae or Freddie Mac may require a lump sum payment at the end of the forbearance period.

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What you can do to get out of COVID-19 forbearance

Consumers have used mortgage forbearance to get back on their feet financially, but it’s easier said than done to resume mortgage payments in full. Here are some ways to get out of coronavirus mortgage forbearance and start paying off your home loan again.

  1. Refinance Your Mortgage
  2. Sell ​​your house and downsize
  3. Find other ways to cut costs and save money

1. Refinance your mortgage

If you’re still on COVID-19 mortgage forbearance but continue to make your monthly mortgage payments, you’re in luck. The Federal Housing Finance Agency (FHFA) has mandated that withholding mortgages who have made at least three consecutive monthly payments are eligible to refinance or buy a new home.

This regulation ensures that mortgage borrowers, even those who abstain, have access to historically low mortgage refinancing rates in the market.

Find out what types of rates you might be eligible for on Credible’s online marketplace. You can compare the refinancing rates of several mortgage lenders so you know you are getting a good rate.

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2. Sell your house and downsize

Many mortgage borrowers have come out of mortgage forbearance by selling their homes, capitalizing on the equity they have built from the record value in the current market. The average selling price of existing homes increased 17.2% between March 2020 and March 2021, from $ 280,700 to $ 329,100, according to National Association of Real Estate Agents.

With this rapid appreciation in value, you may be able to sell your home and prepay your mortgage, including any forbearance due.

However, keep in mind that high home values ​​will make it difficult to find another home in the same price range, so it may be a good idea to downsize or move to an area where the housing market is tight. less competitive, if possible.

During the home buying process, it’s important to find a mortgage that you can afford to follow so you don’t end up withholding in a smaller home. You should also use a tool like Credible’s Online Marketplace to compare mortgage rates and get the best deal on a home loan.

3. Find other ways to cut costs and save money

Many industries have rebounded as the pandemic begins to subside, but workers in some sectors may still be affected by lower incomes or shorter working hours.

It may not be possible for all borrowers to increase their income to pre-pandemic levels, so one solution might be to lower costs from your monthly budget. Here are a few ways to do just that:

  • Pay off high interest credit card debt. The Fed report found that forborne mortgages were using their extra cash to pay off credit card debt of an average of $ 2,100, which may lower monthly costs when mortgage payments resume.
  • Consolidate other debts. A credit card with balance transfer or a debt consolidation loan can save you money in interest and lower your monthly debt payments. You can also contact a licensed credit counselor to sign up for a debt management plan.
  • Refinance other debts when rates are low. For example, you can consider refinancing your private student loans. Borrowers who refinanced their shorter-term student loans on Credible saved on average $ 17,344. To see if refinancing is right for you, visit Credible.

When refinancing, shop around to compare rates

While you can consider refinancing with your current mortgage lender, they may not be able to offer you the lowest rate possible. You should shop around with several lenders to try and find the best refinance rate for your situation. You can also use this research to see if your current lender will match or beat the rate. The same goes for all other types of loans, such as personal loans and student loans.

Credible’s online loan market allows you to pre-qualify and see potential rates in one form, without affecting your credit score. You can also get in touch with experienced loan officers who can help you design a plan of action.

Have a financial question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question can be answered by Credible in our Money Expert section.


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About Joan Ferguson

Joan Ferguson

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