Lower rates and better terms from a refi could be alternative to emergency relief
Boston, MA – September 17, 2020
With interest rates plunging to new lows, American Consumer Credit Counseling (ACCC) is advising more clients on mortgage refinancing as well as COVID-19 relief options made possible through the CARES Act.
The CARES Act grants consumers 180 days of forbearance with the option to extend another 180 days if needed. Under forbearance, consumers can either reduce their monthly payments or suspend payments without being charged late fees or reported to credit bureaus. Interest still accrues, and the full balance must be paid off in full, but consumers can spread their missed payments and interest over time.
“Although interest rates are at an all-time low, there are several things consumers must consider before refinancing their mortgage,” said Steve Trumble, President, and CEO of American Consumer Credit Counseling. “An important question is whether they are refinancing to lower monthly payments or to shorten the overall term. With fees and closing costs associated with a new loan, refinancing is not always the most cost-effective option for consumers looking to reduce their payments.”
Borrowers should check credit scores and get quotes from several different mortgage lenders. Lenders will do an appraisal to ensure the home’s value can support the loan. Borrowers should also assemble all relevant financial documents – pay stubs, tax returns, bank statements, monthly expenses, and debt – to demonstrate employment stability, proper debt-to-income ratio, and other creditworthiness factors for the mortgage underwriter.
“Even though interest rates are low, there are many consumers who are struggling to make ends meet due to layoffs, furlough, or the closing of a business,” said Trumble. “Mortgage forbearance may make sense for those struggling to make monthly mortgage payments due to the unforeseen circumstances the pandemic has caused.”
Data from the Mortgage Bankers Association shows that over four million Americans are either in or have sought relief through forbearance programs. Under the CARES Act, consumers holding federally backed mortgages and who have experienced financial hardship may enter the forbearance program and be saved from foreclosure. Federal mortgages include Fannie Mae, Freddie Mac, FHA, VA, and USDA.
“While forbearance is not reported to the credit bureaus, down the road, lenders will be able to see if a consumer was ever in forbearance, which could impact their ability to get a loan,” added Trumble.
Because of the pandemic, Americans have had to place their long-term financial commitments at risk just to survive daily expenses. According to ACCC’s Second Quarter Financial Health Index, close to 40 percent of respondents say they have an unhealthy debt-to-income ratio. The survey also found that the number of respondents who are not confident in the U.S. economy rose from 16 percent in March to 23 percent in June.
About American Consumer Credit Counseling
American Consumer Credit Counseling (ACCC) is a nonprofit credit counseling 501(c)(3) organization dedicated to empowering consumers to achieve financial management through credit counseling, debt management, bankruptcy counseling, housing counseling, student loan counseling, and financial education concerning debt solutions. To help consumers reach their goal of debt relief, ACCC provides a range of free consumer personal finance resources on a variety of topics including budgeting, credit and debt management, student loan assistance, youth and money, homeownership, identity theft, senior living, and retirement. Consumers can use ACCC’s worksheets, videos, calculators, and blog articles to make the best possible decisions regarding their financial future. ACCC holds an A+ rating with the Better Business Bureau and is a member of the National Foundation for Credit Counseling® (NFCC®). For more information or to access free financial education resources, log on to ConsumerCredit.com or visit https://www.consumercredit.com/debt-resources-tools/