One of the lifelines 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 cash for emergencies.
Still, the majority of people who went into forbearance remain stressed about getting — and staying — on track with mortgage payments, according to the results of a survey by Credit Karma which was exclusively shared with USA TODAY.
About 2.2 million homeowners had entered forbearance plans as of April 25, 2021, according to the Mortgage Bankers Association. In May 2020, more than 4 million U.S. mortgages were in forbearance.
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Of those surveyed who were in forbearance, 59% felt that their financial stability depended on being able to delay their mortgage payments, and 62% agreed that they felt stressed about the payments they would eventually need to make toward their mortgage in the future.
While in forbearance, 34% used the cash that would have gone toward their mortgage for essentials like groceries, medical needs, utilities and additional expenses incurred throughout the pandemic such as homeschooling equipment and caring for additional family members. Close to 32% saved the money by either putting it toward an emergency fund or a general savings account. About 21% said they used the cash to pay down other debts like student loans or credit cards. The rest (13%) claimed they didn’t have any extra money, even while in forbearance.
“Forbearance is a double-edged sword. It’s great because it allowed people to stay in their homes. It allowed them to save the money for necessities like groceries, medical attention or even to pay down debts,” says Andy Taylor, general manager for Credit Karma Home. “But it does come at a cost. Namely, at the end of your forbearance period, you will have to pay that back.”
The results are based on a national online survey conducted in April 2021 among 1,033 adults conducted by Qualtrics on behalf of Credit Karma, a financial technology company with more than 100 million customers.
About 20% of the homeowners in the survey tapped their home equity (what the home is worth minus what is owed on the mortgage) line of credit in the last 12 months. Of those, 41% used the money on home renovations.
“Last year, homeowners with mortgages saw their equity increase by 11%, fundamentally because home values went up pretty significantly in 2020,” says Taylor.
Other insights from the survey:
Many want to own homes
Overall, 30% of respondents said they were considering a home purchase in the next 12 months. Of the 70% who weren’t in the market for a home in the next year, only 2% overall said they’ll never want to buy a home.
But home financial literacy is lacking
To assess Americans’ understanding of two basic terms related to home ownership, Credit Karma asked survey takers to select the correct definition for the terms out of four possible options.
Only 54% of respondents selected the correct answer when it came to the definition of home equity. Fifty-nine percent of homeowners were more likely to pick the right answer compared with 45% of renters.
Respondents did slightly better identifying the meaning of home value, which is the current market value of a home. A full 62% were able to pick out the correct definition.
Surprisingly, people who had tapped into their home equity in the last 12 months did worse than the overall group in selecting the correct definitions. Only 45% of this group correctly identified the definitions of home equity and home value — an indication that people may be getting financial products they don’t fully understand.
One area of strong understanding: 84% of survey respondents overall knew that it’s possible to leverage home equity to access cash.
Taylor provided USA TODAY with some tips for people dealing with forbearance
Talk to your servicer
“The first step to getting forbearance is talking to your mortgage servicer. You’ll need to ask about its forbearance or hardship options,” says Taylor.
Sometimes your mortgage servicer is not the same as the financial institution that you originally got your mortgage from. When asking for forbearance, you need to make sure you’re talking to the correct party.
“You should also check to see who your mortgage is backed by. If your mortgage is backed by Fannie Mae, Freddie Mac or the federal government, you may have additional help available to you,” says Taylor.
Understand your options
Forbearance can look different depending on the type of loan you have, what the requirements are for your mortgage and who your servicer is. Forbearance may mean that your payments are paused entirely or that your payment amount is temporarily reduced.
Make sure you understand what you’ll owe and when forbearance ends. With certain types of forbearance, you may end up owing all your paused payments in a lump sum as soon as the forbearance period is over.
One thing to keep in mind: Interest continues to accrue even on the paused or reduced amounts.
Seek professional advice
“This whole process can be incredibly overwhelming,” says Taylor. “If you need some help, the Consumer Financial Protection Bureau has created a tool to help you find housing counselors that are approved 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 the Housing and Economy reporter for USA TODAY. Follow her on Twitter @SwapnaVenugopal