COVID-19 Mortgage Relief and Forbearance Options
The emergence of the novel coronavirus (COVID-19) has changed the way we live in nearly every way. Online shopping, social distancing, and take-out food has become the norm. While some people have been fortunate enough to maintain some normalcy—only being affected by their lack of ability to socialize—others are experiencing some of the biggest financial hardships of their life.
Since March, people have been struggling to find a long-term solution to the financial hardships caused by COVID-19. As state-wide closures continue to occur throughout the United States and everyday more businesses close their doors for good, many homeowners are worried about what is going to happen with their mortgage. Whether you’re working from home, are temporarily out of a job, or have lost your income altogether, it’s important to understand what COVID-19 means for your mortgage. Here are a few things that you need to know to help relieve financial hardships and anxiety surrounding the current situation.
The Federal Reserve
The Federal Reserve is the central bank of the United States. It helps to provide the nation with a safer, more flexible, and more stable monetary and financial system. When COVID-19 first began affecting the economy, The Federal Reserve took action in an effort to help protect against more economic damage from occurring. To do this, one of the things that they did was lower rates on mortgages. As of right now, The Federal Reserve interest rate is at about 0.25%. For some perspective, it was at roughly 1.75% at the same time last year. This is a huge difference and can make a substantial impact on your monthly mortgage payments. The Federal Reserve has also stated that they aren’t planning to raise the rate until they’re confident that the economy has weathered the events of COVID-19 and employment and inflation return to normal.
If you already own a home and are locked in higher interest rates, you have the option of refinancing. If you’re still unable to make your mortgage payments, you have a few different options: forbearance and COVID-19 payment deferrals.
What to Know if You’re Refinancing
Millions of homeowners are refinancing right now to take advantage of lower interest rates. If you’re thinking about refinancing, make sure that you do so safely and try to take as many preliminary actions in a virtual setting. You can complete and submit an application online using an easy-to-follow process that informs you of any missing documents. You should also make sure that you fully understand why you’re refinancing and know how it will impact your rates both short-term and long-term. Some common reasons that people refinance is to shorten their loan term, lock in a low fixed-rate loan, get rid of FHA mortgage insurance, and to reduce their monthly mortgage payment. However, not all lenders are the same. Make sure that you shop around, ask questions, and put in effort to find the best deal possible.
If you cannot afford your mortgage payments after refinancing, you may be eligible for relief through forbearance. Forbearance is when your lender allows you to temporarily pause or reduce your monthly mortgage payments. This does not change the amount you owe—you will still have to repay any missed payments, or the difference owed from reduced payments. Since this can create difficulties in the future, forbearance should be considered a last resort. If you can make your payments, make them.
If you’re unsure about whether or not you’re eligible for forbearance, and the degree to which you are, make sure that you talk to your lender to better understand your circumstances. Many options require reinstatement at the end of forbearance, meaning you have to pay the total unpaid amount all at once. This is not the case with COVID-19 payment deferrals.
COVID-19 Payment Deferrals
In March 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed. This economic relief package was meant to help protect American people from the public health and economic impacts of COVID-19. If you have a mortgage that’s backed by the federal government, the CARES Act allows you to temporarily suspend payments (forbearance) if you’re experiencing financial difficulty due to the impact of COVID-19. This forbearance can last up to 180 days and the deadline to start is currently set at December 31, 2020. The advantage of COVID-19 payment deferral over traditional forbearance is the immediacy of benefits. You will not have to undergo a trial period and you will not be charged interest on the amount owed while your payments are paused. You will also not be required to provide immediate reinstatement.
Under the CARES Act, your federally backed mortgage servicer or lender can’t require you to repay any skipped payments in one lump sum when your forbearance ends. This is arguably one of the most beneficial aspects of the COVID-19 payment deferral, especially for those who are currently out of work. Instead, you’ll work together to determine a repayment plan, which will take the amount you owe and spread it over a fixed period of time. Keep in mind that when forbearance ends, this will be on top of your regular mortgage payment, so it can be overwhelming. Due to the long-term stress of forbearance and COVID-19 payment deferrals, it’s recommended that you continue to make your mortgage payments regularly for as long as possible and only use these options as a last resort.
There has also been a halt on foreclosures to help protect those struggling the most. This is also in place until December 31, 2020. Another relief package to extend this into 2021 is still being discussed.
If you currently have a mortgage that’s owned or backed by a private lender, the CARES Act does not apply. As we mentioned above, make sure that you contact your lender to understand what your options are.
Selling a Home During COVID-19
If you need to sell your home during COVID-19, it’s important that you follow specific protocol to make the process as safe and efficient as possible. Do some research on how to provide a successful virtual showing and try to digitalize everything you can. Be strategic with pictures and consider utilizing a 3-D tour. When conducting in-person showings, always take the proper precautions and only allow serious buyers to enter and tour your home. If everything goes well and you get an offer, talk to your real estate agent about remote closing options available to you. While selling your home during COVID-19 presents unique challenges, it is possible. The same can be said about buying a home during COVID-19.
Buying a Home During COVID-19
If you’re looking to buy a home right now, that’s great. While COVID-19 has changed certain procedures, financing options, and the market in general, you can still move forward and find a new home. You might have fewer homes available to choose from, but that doesn’t mean that you won’t find what you’re looking for. To give yourself a better chance at finding a home within your budget that fits your lifestyle needs, it’s important to find a good real estate agent. Since many would-be sellers have taken their homes off the market, or are waiting out the pandemic, you’ll want to have access to everything available in your area. Working with a strong real estate agent will help you with this.
Aside from the reduction in homes on the market, now is a great time to buy. Interest has never been lower and it’s a great time to lock in an affordable mortgage rate. To make the buying process easy and straightforward, consider getting a mortgage preapproval letter to show prospective sellers. This lets them know that you’re serious, making the process worth the added effort during COVID-19. Be patient and make sure that you’re taking the necessary safety precautions during your search. Follow the recommendations by the CDC, do as many things virtually as possible, and be patient with your search.
When looking for real estate agent that will prioritize your needs, contact First Star Realty. First Star Realty is committed to providing five-star realtor services to Northwest Arkansas. We’ll work with you throughout the entire buying or selling process to give you the peace of mind you need during COVID-19. Our clients always come first, which is why we only measure achievements through client satisfaction. If 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