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The U.S. government will allow you to delay mortgage payments up to 1 year, but you should not do that if you can afford to make the payments even if you got furloughed from your job.
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Fannie Mae and Freddie Mac, two of America’s leading sources of financing for mortgages, told their servicer to offer up 12-month deferral on mortgage payments if borrowers suffer hardship.
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Even if Fannie Mae or Freddie Mac does not own your home loan, you might still be able to delay private lender loans. Bank of America and other private lenders already announced that they would let their customers defer mortgage payments.
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The U.S. government will allow you to delay mortgage payments up to 1 year, but you should not do that if you can afford to make the payments even if you got furloughed from your job. Interest charges will continue to accrue while delaying mortgage payments.
If you have an emergency fund, you should withdraw from it to continue making your mortgage payments because interest on savings accounts is close to zero percent. Withdrawing from your savings to make mortgage payments will save you more on interest charges in the long run.
Although we don’t have actual numbers yet, Covid-19 will cause the U.S. employment rate to spike violently. A few preliminary estimates revealed that the unemployment rate could jump as high as 20 percent. The next economic recession is inevitable now.
DELAY MORTGAGE PAYMENTS
The Trump administration is being proactive by introducing numerous economic reliefs to Americans—from the suspension of interest on student loans to mortgage payment forbearance.
Fannie Mae and Freddie Mac, two of America’s leading sources of financing for mortgages, told their servicer to offer up 12-month deferral on mortgage payments if borrowers suffer hardship. Your mortgage servicer handles the day-to-day tasks for managing your loan. Your mortgage statements come from your servicer.
If you suffer financial hardship due to the Covid-19, payment deferrals on home, auto, and personal loans are welcome news. However, if you are lucky enough to have an emergency fund, keeping making payments is in your best interest. The loan will end up costing you a lot more if you delay payments. So, if you can afford it, you need to continue to pay down debt.
The purpose of building emergency funds is for unexpected situations like the Covid-19 crisis. Extending the terms of your loans and paying more in total interest charges defeat the purpose of emergency funds.
Payment deferrals are not principal forgiveness. Interest will continue to accrue while you delay your mortgage payments. Once the Covid-19 crisis ends, your lender will mostly capitalize on all of your accumulated interest or extend the maturity or both. Accrued interest that is capitalized increases your outstanding principal.
For millions of Americans who do not have emergency funds, payment deferrals can be a great help, and those borrowers should take full advantage of them.
Even if Fannie Mae or Freddie Mac does not own your home loan, you might still be able to delay private lender loans. Bank of America and other private lenders already announced that they would let their customers defer mortgage payments. Private lenders also promised to halt evictions and repossessions.
