With a third wave of the coronavirus underway in the U.S. and unemployment still woefully high, millions of Americans are slipping further and further behind on the biggest debt they have.
In July, 1.4% of homeowners with a mortgage were late with their payments by four months or more. That was the highest mortgage delinquency rate in more than 21 years, according to research released in mid-October by the data firm CoreLogic
Many more homeowners are falling behind by one, two or three months.
A string of late or missed payments can be disastrous, starting with the implosion of your credit score and ending with a potential foreclosure once moratoriums end. If your income has been disrupted, here are a few things you can do to avoid becoming delinquent.
Seek forbearance (or an extension)
The delinquency rate includes the millions of Americans who requested forbearance under the CARES Act and have put their mortgage payments on hold. Even though they’re protected for now, their debts have only been delayed — not forgiven.
The act can offer temporary relief to any homeowner with a federally backed mortgage. That includes:
Loans sold to government-sponsored mortgage giants Fannie Mae or Freddie Mac.
Mortgages guaranteed by U.S. agencies including the Federal Housing Administration, the Department of Veterans Affairs and the U.S. Department of Agriculture.
If you qualify, you still have time to apply for six months of mortgage forbearance. And if you’re already in forbearance, you can apply for an extension of another six months.
Once your mortgage payments are on pause, start planning for the future. Delaying the problem won’t do you much good if you can’t find a way to improve your situation in the next few months. For example:
Refinance into a lower mortgage rate
Mortgage rates are still hovering around all-time lows, and refinancing to a lower rate could shave hundreds of dollars off your monthly payments.
Although lenders typically require you to have a steady job before they’ll grant you a new loan, they might make an exception if you’ve got a solid credit score, a co-signer or can demonstrate that you have other sources of income, such as investments or disability payments.
If you’re not sure where your credit score stands, you can check it for free online.
If you use a site that also offers free credit monitoring, you'll be notified of any changes in your score and receive personalized advice on how to bump it up if it’s lower than average.
Once you’re confident your score is in decent shape, you should shop around for quotes from multiple lenders to make sure you get the best rate possible when you refinance.
Talk to your lender about modifying your loan
If you aren’t able to refinance, another option is to talk to your lender about getting a mortgage loan modification.
With a loan modification, you may be able to extend the length of your loan to reduce your monthly payments, lower your interest rate or switch from an adjustable-rate to a fixed-rate mortgage.
It’s important to contact your lender as soon as possible if you think you're in danger of defaulting on your loan, since the loan mod application process can sometimes take up to 90 days.
Be aware that modifying your mortgage will cause your credit score to drop, although the impact on your score will be much more severe if you default.
It’s also essential to recognize that if you extend your term, you’ll end up paying more in interest over the course of your loan.
Consolidate your debt
Chances are good that if you’re struggling to make your mortgage payments, you’ve put your other debts off to the side for the time being. Your home takes priority.
But if you’re only making the minimum payments on high-interest debts like credit cards, you’re likely racking up a mountain of compounding interest that will only make it harder for you to scrape by in the future.
If your credit score is good, you might want to consider bundling your nonmortgage debts together into a low-interest debt consolidation loan.
You’ll be on the hook only for a single monthly payment at a better interest rate, which means you’ll have more money left over to put toward your mortgage.
Free services can show you all the debt consolidation options you currently qualify for, making it easy to find the loan with the best terms.
Cut down on your other monthly bills
Although it probably won’t save you enough to cover your entire payment, shaving some money off your other monthly expenses can help to offset the cost of your mortgage.
Start by checking to see whether you’re still paying for any subscription services that you no longer use, since it’s easy to forget you’re being billed if you have autopay set up.
Free apps like Truebill can help you easily find and cancel any subscriptions you no longer want and let you know if the services you do use regularly go up in price.
You might also be able to save some money by shopping around for a lower rate on your car insurance. Best practice is to check for lower rates every six months.
You can compare quotes from multiple insurers for free, and may be able to find the same coverage you currently have at a much lower price, saving yourself as much as $1,100 a year.
Keep an eye out for more stimulus relief
Unfortunately, it's not clear if a second round of stimulus checks will be arriving in the coming weeks.
But depending on the results of the upcoming election, a new stimulus package could be announced in the new year, and it may include mortgage relief measures similar to those in the original CARES Act.
In the meantime, keep an eye on the news and check out how to make your own stimulus check while you wait for Congress to take action.