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Many homeowners sign up for a mortgage only to fall behind on their payments down the line. Factors like job loss, illness, and other unfortunate circumstances can create a scenario where borrowers become delinquent. Once that happens, trouble can follow.
People who can't keep up with mortgage payments risk losing their homes to foreclosure. Every missed payment can also do serious damage to your credit score.
In light of that, it's bad news, at least at first glance, to see that mortgages with delinquencies of 90 days or more are on the rise. In fact, home loans without a payment for at least 90 days are at their highest level since 2010, reports Black Knight.
A delinquency of 90 days is considered serious as borrowers will have missed three monthly payments. And Black Knight says there are currently over 1.8 million more serious delinquencies than before the coronavirus pandemic.
But when we dive into the reason why longer-term delinquencies have climbed, the explanation paints a less frightening picture.
Why are mortgage delinquencies up?
Many homeowners have had no choice but to put their mortgages into forbearance in the course of the COVID-19 pandemic. Under the CARES Act, struggling homeowners are allowed to request 180 days of forbearance and then a 180-day extension for a total of 360 days during which mortgage payments are paused.
Thanks to CARES, which provides financial relief in light of the crisis, mortgage accounts that land in forbearance as a result of COVID-19 cannot be reported negatively to the three major credit bureaus.
The reason delinquency rates are so high is that that Black Knight's tally includes non-payments that are under forbearance agreements. In other words, all of the people whose loans are now on pause are still being counted in the above statistic. Even though from a credit report standpoint, they're not being recorded as or dinged for being delinquent. The result, however, is the same, with delinquencies still reaching a 10-year high.
Should you put your mortgage into forbearance right now?
Normally, putting a home loan into forbearance is not a decision to take lightly. That's because a forbearance can appear as a negative mark on your credit report. But as we've just discussed, borrowers who've been impacted by the coronavirus should be protected against this.
As such, if you think you won't make an upcoming mortgage payment, or several payments, you're better off putting your loan into forbearance than being late. Late mortgage payments could not only hurt your credit; they could also put you at risk of foreclosure, and that's a load of stress you simply don't need.
Of course, one thing to keep in mind is that you will need to be prepared to make good on your missed mortgage payments once your forbearance period comes to an end. Before you rush to request forbearance, ask your lender what its policy will be as far as repayment goes. Knowing how long you'll have to come up with that money will help you better prepare.
Finally, before you put your loan into forbearance, you may want to talk to your lender about other relief options. If you're in a position where you can make partial payments on your mortgage, for example, that may be preferable to pausing your loan payments completely so you won't fall so far behind. It's always worth being open with your lender, especially at a time like this when so many Americans are struggling financially.
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