Borrowers who recently took advantage of forbearance plans won’t be penalized when it comes to getting a better interest rate, or even buying a new home.
If you took a hardship break due to the coronavirus crisis and suspended your mortgage payments, you’re still eligible to refinance your mortgage loan this year, according to a recent announcement from the Federal Housing Finance Agency (FHFA).
Here's everything you need to know about refinancing your mortgage (while mortgage rates are at record lows).
New rules allow borrowers in forbearance to refinance
While forbearance is typically a ding on your credit and lessens the chances of refinancing or purchasing anytime soon, new rules give borrowers some leniency and allow them to refinance earlier with a shorter (or no) waiting period as long as certain conditions are met. Instead of the required 12 months of timely payments, once the forbearance period ends you just have to make on-time payments for three consecutive months in order to be eligible for a refinance. Mortgage refinance rates have recently reached record lows, so you should act quickly.
To understand just how much you could save on monthly mortgage payments by refinancing now, crunch the numbers and compare rates using Credible's free online tool. Within minutes, you can see what multiple lenders are offering.
Making payments on time is enough to signal to your lender that your financial situation was a temporary setback and you’re able to keep up with your mortgage payments post-forbearance. With so much confusion surrounding forbearance as of late, the new temporary policy was put in place to clarify what happens once your forbearance period ends.
Some borrowers enrolled in forbearance because of COVID-19 related challenges but wound up remaining current on their repayments. Lenders believe that shouldn’t have an effect on their ability to qualify for a refinance or new home purchase. Another plus, though not required: if you pay the full amount missed during the forbearance right after you reinstate your mortgage, there’s no waiting period to refinance.
The new policy applies to mortgages back backed by Fannie Mae and Freddie Mac. Loan applications dated on or after June 2, 2020, are eligible, but the policy doesn’t apply to high loan-to-value refinance loans. The mortgage giants noted that they are not considering payments missed during COVID-related forbearance that have been resolved to be historical delinquencies.
Why refinance after forbearance
A refinance has been one of the ways borrowers have been using to save money during the coronavirus. It means paying off your original home loan and replacing it by creating a second one with a much better interest rate. The process is similar to your first mortgage in terms of documentation needed and the approval process.
Interest rates set another recent record low with the 30-year fixed rate dropping as low as 3.37 percent. These super low rates should be music to your ears if you’re looking to refinance because that means more money in your pocket. Use Credible to see just how much money you can save by refinancing today.
By refinancing your mortgage, you will have lower monthly payments and your loan will be paid off much faster. If you have an adjustable-rate mortgage, a refinance lets you change to a fixed-rate one so that you can lock in your lower interest rate for the entire life of the loan. This alleviates having to worry about a rate increase.
The regulators will continue to monitor the impact of the coronavirus and update their policies on forbearance and refinancing as needed.
Be sure and compare mortgage refinancing rates from various lenders. Many borrowers make the mistake of not doing enough research and going with the first lender they see. This mistake can potentially cost you thousands of dollars a year.
Take a look at online tools like Credible for an easy way to compare mortgage refinancing rates from a variety of lenders at the same time and even get pre-qualified. You can do so without affecting your credit score.
If you’re worried about your credit score or not sure if refinancing is a good idea right now, don’t just go by what you may have heard in passing. Take the time to find out what’s fact versus fiction when it comes to mortgages and refinancing.
With COVID-19 making it tough for homeowners to maintain their mortgage payments, many enrolled in forbearance programs. In fact, a June 1 report from the Mortgage Bankers Association noted that just over 4.2 million homeowners are now in forbearance plans. The total number of loans now in forbearance grew to 8.46 percent.
Meanwhile, data from Black Knight Financial showed that 3.6 million homeowners were past due on their mortgages as of the end of April, representing the largest number since January 2015.
This goal is to make sure borrowers are not penalized for the setback and “allows homeowners to access record low mortgage rates and keeps the mortgage market functioning as efficiently as possible," explained Mark Calabria, director of the FHFA.
So, if you’ve been watching those interest rates drop and you’re in forbearance, be sure and keep up with your mortgage payments once you resume making payments.