Published in: Mortgages | Oct. 8, 2020
By: Maurie Backman
Mortgage borrowers are missing an opportunity to protect their credit scores.
The coronavirus crisis has hit a lot of homeowners hard, so it's not shocking that many borrowers are falling behind on their mortgages. But a new analysis from the Urban Institute reveals that about 400,000 homeowners have become delinquent on their mortgages during the pandemic when they could, in fact, avoid that fate by taking advantage of the relief that's available to them. And that's troubling in its own right.
Homeowners who can't keep up with their mortgage payments due to the pandemic have the right to request forbearance on their loans. When your mortgage goes into forbearance, you're allowed to skip payments and catch up on them later without being flagged as delinquent on those payments. That's important, because not having those late or missed payments on your credit report can help keep your credit score intact.
During the pandemic, homeowners who need mortgage relief are allowed to request an initial 180 days of forbearance, with the option to extend that for an additional 180 days as needed. All told, borrowers can pause their mortgage payments for almost an entire year if they've been impacted by the ongoing crisis, yet there may be 400,000 homeowners out there who don't know they're eligible for this protection.
Normally, putting your mortgage into forbearance could hurt your credit score -- though the hit would still be less substantial than the damage you'd face by being delinquent. But during the pandemic, putting a mortgage into forbearance cannot negatively impact your credit. That's one of many provisions offered by the CARES Act, signed into law in late March to provide relief during the ongoing crisis. So if you're falling behind on your payments, or fear you're about to, forbearance is a pretty good choice.
9 in 10 Americans can qualify to refinance their mortgage. With mortgage rates plummeting to multi-decade lows, there's no better time to cut your monthly mortgage payment.
To be clear, once your forbearance period ends, you'll need to repay the mortgage payments you skipped. Your lender should provide you with information on how you're expected to catch up on those payments. Furthermore, you're still allowed to make payments toward your mortgage when your loan is in forbearance, and that's an option worth exercising if your finances allow for it.
Imagine you normally make a $1,200 mortgage payment each month, and you pause six months of payments via forbearance. That means you'll have $7,200 to catch up on after the forbearance period ends. On the other hand, if you can afford to pay $500 a month toward your mortgage, you'll only owe $4,200 at the end of your forbearance period, making repaying that debt much more manageable.
That said, before you put your mortgage into forbearance, there is another option worth exploring: refinancing. If your credit score is strong, you may be able to swap your existing mortgage for a new one with a lower interest rate, lowering your monthly payment. Going back to our example, imagine you're able to shrink your $1,200 mortgage payment to $1,000 by refinancing. If lowering that payment by $200 a month allows you to keep up with it, then refinancing may be a better route, because you'll stay current on your payments and won't have to worry about playing catch-up later.
There's lots of relief available during the coronavirus crisis, and mortgage forbearance is just one form of it. If you're struggling financially, it pays to explore the resources that could help get you through this very difficult time.
Chances are, mortgage rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase. Click here to get started by scanning the market for your best rate.
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