As financially damaging as the mortgage collapse of 2009 was, it wasn’t nearly as widespread as what we are currently facing. Many people in various sectors are currently not earning a paycheck or generating income. Savings have been exhausted and paying everyday bills has become more difficult. Fortunately, the government has thrown many homeowners a lifeline and halted mortgage payments for the time being. Before you blindly assume that you do not, or should not, make your payment there are a few critical items you should know. This information could have a dramatic impact on your situation in just a short few months down the road. Here are five things you should do if you can’t make your next mortgage payment.
Don’t assume that you don’t have to pay your mortgage based on what you heard on the news or saw on social media. Sure, there is a good chance that your lender is offering some kind of deferment, but it isn’t a guarantee. Even if they are offering something you need to know exactly what you are getting into. There is a big difference between a modification and a deferment. A loan modification typically will decrease your interest rate to a monthly payment you can afford. Any missed payments are tacked onto the back end of the loan. With a deferment, your lender is simply allowing you to miss the next three months of payments without any negative impact on your credit. The catch is that they are going to ask for the payment in full after the 90 days. If you cannot make the full payment your lender may start the process of foreclosure or take some other kind of adverse action. Individual lenders may handle things differently which is why it is so important to talk to customer service before making any decision.
As of right now, nobody knows when things are going to change. Some states appear to be less impacted than others, but it doesn’t mean they are totally out of the woods. If you don’t think you can make your payment you should come up with a short term three-month plan. Simply put, how do you plan on making your payment after the 90 days? Lenders don’t have to accept partial payments or even extend the deferment period if they don’t want to. To err on the side of caution you should assume that you need the full payment to stave off foreclosure. What is the likelihood of your business opening in the next few weeks or your paycheck bouncing back to normal? If it does, will you have the ability to accumulate the full payment? Without a firm plan in place, you run the risk of losing your home.
There are many sectors impacted by COVID-19. Everything from restaurants to commissioned sales agents has seen a severe dip in income. While the short term goal is to protect your home from foreclosure in the next few months, you also need to think about the relative big picture. Is your employment or business in an area that will need time to ramp back up? Will you make some income over the next 12 months? Will you be forced to change careers and prolong the period before generating income? You don’t want to simply put a Band-Aid on the problem if the cut is much deeper. It may be best to take action now before things get too much worse.
If you can’t make your payment and your employment situation is shaky, you should do a full capital evaluation. In addition to basic checking and savings accounts, you should look into your retirement funds, pensions, stock holdings, and any other type of capital accounts. Perhaps, you could draw from this penalty-free or with a discounted interest rate. If you have an accountant or financial advisor it is recommended to talk to them before making any rash decisions. You can also explore the option of a HELOC if you have equity. HELOC rates are nearing historic lows and can provide interest-only payment flexibility. That being said, they also add to the total amount owed, which will negate future sales profits.
If you know that your employment situation may not improve for several months, it is best to act now. Before you get any lates on your credit report or the real estate market dips it could be worth considering selling now. Selling now could put you in a better position to capture what equity you do have in your home and limit the risk of losing your home to foreclosure if things don’t improve. Having an offer on the table would at least give you an idea of what you’d net and walk away with as a result of the sale. With us, getting a cash offer for your property is easy and fast…..
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