Across Massachusetts, the COVID-19 crisis has created tremendous medical, financial and emotional challenges. MTA Benefits members have faced these challenges head-on while continuing to provide essential education services and support.
At the center of the hardships that many now face is their single largest monthly expense: the home mortgage. Although there is far from 100 percent clarity in these uncertain times, please read on for information about how the COVID-19 crisis has affected the mortgage industry and to get guidance on what homeowners can do to ensure that they are making the right decisions regarding their own mortgage payment scenarios.
1. Refinancing for Historically Low Rates
If you remain fully employed, refinancing your current mortgage to lower your monthly mortgage payment might go a long way toward easing your financial burden. Interest rates are at historic lows, falling below 3 percent in many cases, depending on your credit score. Homeowners are often saving hundreds of dollars per month through simply refinancing to a lower rate.
2. Refinancing Scenarios and Options
- Refinance for a lower rate or mortgage term. This may be the best time to save money over both the short and long term — by locking in a low rate, reducing the term left on your mortgage, or both.
- Cash-out refinance. If you believe you need quick cash from the equity you have already built up in your home, a cash-out refinance might be your best solution. 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 also be used to consolidate debt or for other expensive investments, such as higher education and home renovations.
- Eliminate mortgage insurance. This could also be a great time to finally rid yourself of the hundreds of dollars in monthly mortgage insurance you might be paying on a Federal Housing Administration loan. Consider converting the loan to a conventional mortgage. You might also gain a lower interest rate.
- Don’t worry about closing costs. For refinance loans, closing costs are typically well below those seen on a purchase mortgage. They can be easily rolled into your long-term mortgage for a minimal out-of-pocket refinance expense.
- Take advantage of mortgage discounts. MTA Benefits’ endorsed mortgage lender, Mid-Island Mortgage, offers thousands of dollars in mortgage discounts, reducing your closing costs and fees even further.
- Act quickly. As is always the case, rates could rise at any time — or your household employment and salary situation could abruptly change for the worse, preventing you from refinancing. Lenders are making sure that they verify employment, right up to the closing date.
3. The CARES Act
Signed March 27 and extended through Dec. 31, the Coronavirus Aid, Relief, and Economic Security Act offers borrowers mortgage relief if they hold federally backed mortgages with Fannie Mae, Freddie Mac, the FHA, the Department of Veterans Affairs or the Department of Agriculture. This relief includes:
- The right to request from the 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.
- Suspension of late payment reporting to credit bureaus during forbearance so your credit score is not negatively affected.
4. Who Should Apply for Forbearance Under the CARES Act?
If you do not think you can pay your regular mortgage payment because of your own or your spouse’s unemployment or reduced salary, or because of overall economic hardship as a result of COVID-19, forbearance might help you with missed payments or risk of foreclosure. But you must first work with your current mortgage lender on a forbearance agreement. Depending on your 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 plan under which you pay a portion of your missed payments over an agreed-upon period.
- An extended repayment period in which 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 as the federal government, mortgage agencies and lenders respond to the COVID-19 crisis. That is why it is important to diligently document why you may require a mortgage forbearance agreement. If there has been a pay cut or loss of salary, keep the pay stubs that show the 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 in a safe place. While documented proof is not currently required for forbearance agreements, you may need evidence of hardship to continue to qualify for mortgage relief in the future.
6. Be Aware of Potential Forbearance Outcomes
Be aware of forbearance scammers contacting you and presenting themselves as mortgage relief entities or organizations. Some scammers are attempting to obtain your financial information, including your account and Social Security information. Also be aware that executing a forbearance agreement with your lender may bar you from qualifying 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 Vice President Teresa Balian at 617.665.7770 or email mtabenefits@mortgagecorp.com.
