34% of those in abstention mostly used cash
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 with more money. money for emergencies.
Still, the majority of people who have gone forborne remain stressed to get – and stay – on track with mortgage payments, according to the results of a Credit Karma survey that was exclusively shared with USA TODAY.
About 2.2 million homeowners had entered into forbearance plans as of April 25, 2021, according to the Mortgage Bankers Association. As of May 2020, more than 4 million U.S. mortgages were in forbearance.
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Of those surveyed who abstained, 59% believed their financial stability depended on being able to delay their mortgage payments, and 62% agreed that they felt stressed about the payments they might need to make to pay. their 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 depositing 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.
“Patience is a double-edged sword. It’s great because it allows people to stay at home. This saved them money for necessities like groceries, medical care or even to pay off debts, ”says Andy Taylor, Managing Director of Credit Karma Home. “But 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.
“Last year, homeowners with mortgages saw their equity increase by 11%, basically because home values rose quite significantly in 2020,” says Taylor.
Other information from the survey:
Many want to become owners
Overall, 30% of respondents said they plan to buy a home in the next 12 months. Of the 70% who weren’t looking for a home in the next year or so, only 2% said they’ll 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 out the correct definitions. Only 45% of this group correctly identified definitions of equity and home worth – an indication that people can get financial products they don’t fully understand.
One area of good 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
“The 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, ”says 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.
“You 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 have additional help available to you, ”says 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
“This whole process can be incredibly overwhelming,” 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