One of the lifesavers for homeowners during the COVID-19 pandemic has been forbearance, an ability to skip or make smaller monthly payments on mortgages under the CARES Act, leaving them more than money for emergencies.
Yet the majority of people who entered forbearance remain stressed about getting – and staying – on track with mortgage payments, according to the results of a Credit Karma survey that was exclusively shared with USA TODAY.
According to the Mortgage Bankers Association, approximately 2.2 million homeowners had signed forbearance plans as of April 25, 2021. As of May 2020, more than 4 million US mortgages were in forbearance.
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Of those polled who abstained, 59% believed their financial stability depended on their ability to delay their mortgage payments, and 62% agreed that they felt stressed about the payments they might need to make for their home. mortgage in the future.
During the abstention, 34% used the money that would have gone towards their mortgage for essentials such as groceries, medical needs, utilities and additional expenses incurred throughout the pandemic, such as the home schooling equipment and care for additional family members. Almost 32% saved the money by putting it either in an emergency fund or in a general savings account. 21% said they used the money to pay off debt such as student loans or credit cards. The rest (13%) said they had no extra money, even during the abstention.
âPatience is a double-edged sword. It’s great because it made it possible for people to stay in their homes. This saved them money for necessities like groceries, medical care or even to pay off debts, âsays Andy Taylor, Managing Director of Credit Karma Home. âBut it comes at a cost. Namely, at the end of your forbearance period, you will have to repay this.
The results are based on an April 2021 national online survey of 1,033 adults conducted by Qualtrics on behalf of Credit Karma, a fintech company with more than 100 million customers.
About 20% of homeowners surveyed have used their line of credit against their home equity (the home’s value minus what’s owed on the mortgage) in the past 12 months. Of these, 41% used the money for home renovations.
âLast year, homeowners with mortgages saw their equity increase by 11%, basically because home values âârose quite significantly in 2020,â says Taylor.
Other information from the survey:
Many want to become owners
Overall, 30% of those polled said they plan to buy a home in the next 12 months. Of the 70% who weren’t looking for a home next year, only 2% said they will never want to buy a home.
But financial literacy at home is lacking
To assess Americans’ understanding of two basic terms related to homeownership, Credit Karma asked respondents to select the correct definition of the terms from four possible options.
Only 54% of respondents chose the correct answer regarding the definition of home equity. Fifty-nine percent of landlords were more likely to choose the correct answer, compared to 45% of renters.
Respondents identified the meaning of home value a little better, which is the current market value of a home. A total of 62% were able to choose the correct definition.
Surprisingly, people who had tapped into their home equity in the past 12 months did worse than the rest of the group in picking the correct definitions. Only 45% of this group correctly identified the definitions of equity and home worth – an indication that people can get financial products they don’t fully understand.
One area of ââgood understanding: 84% of survey respondents overall knew that it is possible to leverage home equity to access cash.
Taylor provided USA TODAY with some advice for those facing forbearance:
Talk to your repairman
âThe first step to getting forbearance is to talk to your mortgage agent. You will need to educate yourself about his options for forbearance or hardship, âsays Taylor.
Sometimes your mortgage agent is not the same as the financial institution you originally obtained your mortgage from. When asking for forbearance, you need to make sure that you are talking to the right party.
âYou should also check who your mortgage is secured by. If your mortgage is guaranteed by Fannie Mae, Freddie Mac or the federal government, you may qualify for additional help, âsays Taylor.
Understand your options
Forbearance may look different depending on the type of loan you have, your mortgage requirements, and who your manager is. Forbearance may mean that your payments are fully suspended or that your payment amount is temporarily reduced.
Make sure you understand what you will need and when the forbearance will end. With some types of forbearance, you may end up owing all of your suspended payments as a lump sum as soon as the forbearance period is over.
One thing to keep in mind: Interest continues to accrue even on suspended or reduced amounts.
Seek professional advice
âThis whole process can be incredibly overwhelming,â says Taylor. “If you need help, the Consumer Financial Protection Bureau has created a tool to help you find housing counselors licensed by the Department of Housing and Urban Development.”
Call the HUD hotline at 888-995-4673 any time of the day, any day of the week.
Swapna Venugopal Ramaswamy is Housing and Economics reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal