Across Massachusetts, the COVID-19 crisis has caused tremendous challenges from a medical, financial and emotional standpoint. MTA members have faced these challenges head on, while continuing to provide essential educational services and support to millions.
Situated in the middle of the hardships many now face is their single largest monthly expense: the home mortgage. While there is far from 100% clarity in these uncertain times, below is a general guideline on how the COVID-19 crisis has impacted the mortgage industry and what homeowners can do to ensure they are making the right decisions regarding their own specific mortgage payment scenarios.
1. Refinancing for Historically Low Rates
If you remain fully employed like many MTA members, a refinance of your current mortgage might go a long way in easing your financial burdens, including lowering your monthly mortgage payment. This is because interest rates are at incredibly historic lows, venturing below 3% in many cases, depending on your credit score. Homeowners are often saving hundreds of dollars per month with a simple refinance to a lower rate.
2. Refinance Scenarios & Options
- Refinance for a lower rate or mortgage term – Now may be a uniquely beneficial time to save money over both the short and long term by locking in a low rate and/or reducing the term left on your mortgage.
- Cash-out refinance – If you believe you need quick cash from the equity you’ve already built up in your home, a cash-out refinance might be your best solution. But with this option, it is best to act quickly while your appraised home value remains high and lenders are still offering this product line. This strategy can be used to consolidate debt or for other expensive investments such as higher education and home renovations.
- Eliminating mortgage insurance – Now might also be a great time to finally rid yourself of the hundreds of dollars in monthly mortgage insurance you might be paying on your FHA loan and convert over to a conventional mortgage. All the while, you could also gain an even lower interest rate.
- Don’t worry about closing costs – For refinance loans, closing costs are typically well below those seen on a purchase mortgage and, therefore, are easily rolled into your long-term mortgage for minimal out-of-pocket refinance expense.
- Take advantage of mortgage discounts – MTA
Benefit’s endorsed mortgage lender, Mid-Island Mortgage, offers thousands of dollars in mortgage discounts, reducing closing costs and fees even further. - Act quickly – As always, rates could rise at any time or your household employment and salary situation could change for the negative, preventing you from refinancing. Lenders are making sure to verify employment right up until the closing date.
3. The CARES Act
Signed March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers borrowers mortgage relief if they hold federally backed mortgages with Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA). This relief includes the following:
- The right to request from their mortgage lender a 180-day mortgage forbearance and a subsequent 180-day extension if needed because of loss of salary and economic hardship relating to COVID-19.
- Waiver of late fees once you have established a forbearance agreement with your lender.
- Late-payment reporting to credit bureaus is suspended during forbearance so that your credit score is not negatively impacted.
4. Who Should Apply for Forbearance Under the CARES Act?
If you do not think you can pay your regular mortgage payment because of spousal unemployment or reduced salary or overall economic hardship as a result of COVID-19, forbearance may help you avoid missed payments or risk of foreclosure. But you must first work with your current mortgage lender on a forbearance agreement. Depending on your forbearance agreement and your lender, you will be agreeing to one of the following scenarios:
- A lump-sum payment of all missed monthly mortgage payments at the conclusion of the forbearance period
- A payment plan where you pay a portion of your missed payments over an agreed upon period
- An extended repayment period wherein your missed payments are tacked on at the end of your mortgage term
5. Make Sure You Document Your Financial Hardship
Conditions are changing every day in the federal government and its mortgage agency and lenders’ response to the COVID-19 crisis. That is why it’s important to diligently document the basis for why you may require a mortgage forbearance agreement. If there has been a pay cut or a loss of salary, keep the pay stubs that show the pay reduction. If your financial savings have been reduced because of a decline in your stock portfolio’s performance, keep your statements as proof. If your spouse is laid off, retain those documents safely. While documented proof is not currently required for forbearance agreements, you may require evidence of hardship in order to continue to qualify for mortgage relief in the future.
6. Be Aware of Potential Forbearance Outcomes
Be aware of forbearance scammers contacting you, while presenting themselves as mortgage-relief entities or organizations. Some scammers are attempting to obtain your financial information, including account and social security information. Also be aware that executing a forbearance agreement with your lender may not allow you to qualify for a new mortgage in the future even after forbearance ends. Forbearance will not damage your credit, but it may be considered by some lenders as a modification that disqualifies you from future financing within a certain time period. So, make sure you absolutely require forbearance because of financial hardship before you ask for it.
*Information furnished by Mid-Island Mortgage, MTA Benefits’ endorsed direct mortgage lender. To speak with Mid-Island Mortgage, please contact Teresa Balian, Vice President, at 617.665.7770 or mtabenefits@mortgagecorp.com.