As a non-profit credit and housing counseling agency, we have seen an increase in the number of people looking for assistance with their debts and their home mortgages. The financial decisions we have to make during this time cause stress and uncertainty about the future. In this blog, we will cover some of the options for handling mortgages and ways you may be able to free up money to help meet some financial obligations.
Many people have the option to place their mortgage into forbearance. A forbearance is a plan that allows people to suspend mortgage payments for up to 12 months. The forbearance can be used in increments of six months. To access forbearance, contact the lender for your loan.
The downside of forbearance is that the amount you have not paid becomes due at the end of the forbearance period. For instance, if your mortgage is $1,000 a month, at the end of 6 months you would owe $6,000. The next month’s payment would also be due at this time. This could cause a substantial hardship for many people who may just be getting back to work and may have depleted their savings.
For this reason, we recommend that even if you select forbearance for your mortgage right now, you continue to pay as much you can towards the mortgage on a monthly basis. This will reduce the amount owed at the end of the forbearance period.
We also recommend reviewing your monthly expenses to search for ways to increase the amount of money you can put toward your mortgage. Some people look to credit counseling agencies to assist with consolidating payments on unsecured debt. This option can help reduce the monthly payments, reduce interest fees on accounts and if someone is falling behind, can help bring the accounts back to current status.
If you owe a balance at the end of the forbearance, there are other options to help overcome the repayment hurdle. One option is a repayment plan. The lender would have to agree to accept smaller payments on the arrears (unpaid mortgage payments). These partial payments could be added to your normal monthly payment.
Another option would be to refinance the original mortgage. A refinance works by applying for a new mortgage to pay off the old mortgage. There will be credit, income and equity requirements in order to qualify to refinance your home.
If refinancing is not an option, you may also be able to obtain a loan modification. A loan modification is an agreement between you and the mortgage company to change the original terms of your mortgage. These adjustments may include the payment amount, length of the loan, interest rate and more.
Finally, a thorough budget review is always a great place to start when determining how to free up cash. First, look for subscription services you may be able to eliminate. Services like Ancestry, HULU, NetFlix, newspapers, Spotify, subscription “boxes,” and more can easily add up to over $100 a month. There may be some services you no longer use or could do without for the near future.
Another way to approach expenses is to think about substitutions. Is there something you can exchange, at a lesser cost, that will work for you? For instance, maybe you pay for unlimited data on a cell phone, but rarely use more than 5 gb. If so, you may be able to switch plans. Or perhaps your cable or internet service can be reduced.
Financial decisions are always important and as we navigate changes to our income (and lifestyle) it is important to be open to the options we have around us. Our certified credit counselors are a great resource for learning about credit, debt and mortgage options and are always willing to lend a hand in updating a budget. They are here to help ease some of the uncertainty about our financial futures. You can call or contact one today. 888-282-5811 or click on Get Started Now.