For most homeowners, their mortgage is their biggest monthly expense. But job losses around the country are hammering people’s finances, causing challenges for managing their cash flows and leaving many to wonder how they will pay their mortgage and maintain their home.
While things may seem grim, there are options for homeowners struggling to pay all their bills. CPAs from NCACPA offer these tips to help you better manage your mortgage and bills.
Review Money Coming In, Money Going Out
Cut unnecessary expenditures, like cups of coffee and eating out. Look at savings too. If needed, redirect monthly contributions to a retirement or college fund to cover monthly bills.
Contact lenders about relief options. Some credit card companies offer no-fee and no-interest grace periods that may temporarily reduce your credit card payments, freeing cash for other purposes.
Understand CARES Act & Other Mortgage Relief Options
The federal Coronavirus Aid, Recovery, and Economic Stimulus (CARES) Act gives homeowners experiencing financial hardship 180 days to request a mortgage forbearance. Forbearance puts on-hold interest and payments for a few months to allow homeowners the opportunity to better manage their short-term cash flow issues. Payments are not forgiven and will have to be repaid via a lump sum, spread out over the life of the mortgage or added on at the end of the mortgage. There are no additional fees, penalties, or interest accrued during forbearance. But homeowners must contact their lenders to initiate the process.
Look at modifying your existing mortgage, such as reducing interest rates, changing loans from adjustable to fixed rate or lengthening the loan from 15 to 30 years. Modification options differ by lender, and not all banks offer them. Also, modifications are listed on a credit report and may reduce your credit score, hampering your ability to borrow in the future.
Consider the Long-Term Financial Impact
Refinancing or home equity loans may seem like an attractive solution, but there are drawbacks. Refinancing is a long process, and the monthly savings may come too late. Home equity loans bring additional debt that needs to be repaid.
Regardless, never stop making payments to anything with collateral or assets. Mortgages and car loans are typically backed by the property as collateral. And a credit score is an asset, and ceasing to make credit card, mortgage and car payments can severely hamper your credit. The AICPA’s 360 Degrees of Financial Literacy website offers a variety of free mortgage calculators, as well as tools and information to help you understand how credit works and why it’s important.
Copyright 2020 The American Institute of Certified Public Accountants.