The Federal Housing Administration (FHA) announced it is adding an option that allows homeowners to select a 40-year mortgage if they are behind on their mortgage payments, according to a release from the U.S. Department of Housing and Urban Development (HUD).
This modification is designed to help borrowers reduce principal and interest payments by about 25% from their 30-year mortgage payment plan if they're struggling to begin making their payments again due to the COVID-19 pandemic, according to the FHA.
"Over the last year, we have made substantive changes to our COVID-19 recovery options that are showing strong results in helping homeowners with FHA-insured mortgages recover from the devastating financial effects of the pandemic," said Lopa Kolluri principal deputy assistant secretary for housing and the FHA. "Adding a 40-year modification with partial claim to our toolkit for servicers today reaffirms our long-term commitment to continue helping as many struggling homeowners as we can to keep their homes."
Current homeowners could benefit from refinancing their mortgage amid rising rates, as doing so could reduce monthly payments. A site like Credible can help you find your personalized interest rate without affecting your credit score.
FHA hopes to decrease monthly payments by 25%
FHA loans are more popular among first-time homebuyers are lower-income borrowers. That’s because an FHA mortgage allows for lower credit scores than a traditional mortgage, as low as 580. These loans also have a 3.5% down payment option, whereas borrowers who get a conventional loan may need to put at least 5% down.
The FHA’s loan modification efforts are aimed at helping borrowers who struggle to make their mortgage payments avoid foreclosure. The FHA’s goal is to help these borrowers reduce their principal and interest payments by at least 25%. But for circumstances in which a mortgage servicer cannot get the payment low enough to save 25% through other methods like reducing the interest rate, the new 40-year option is now available.
The FHA said servicers will have the option to begin offering this option immediately, but will be required to start offering it within 90 days.
If you are interested in finding ways to reduce your monthly mortgage payments, consider refinancing your home loan. Visit Credible to compare multiple mortgage lenders at once and choose the one with the best mortgage rate for you.
3 ways that homeowners can lower their monthly payments
Homeowners who are struggling to meet their monthly payments due to COVID-19 or other hardships have several options available to them to lower their mortgage payments. Here are a few:
Those affected by COVID-19 have the option to enter into a forbearance plan. For loans backed by Fannie Mae, Freddie Mac, the FHA or other government agency, servicers are required to allow affected homeowners to enter forbearance without submitting any additional documentation to qualify.
Forbearance puts mortgage payments on pause without any extra fees, penalties or added interest. After the forbearance period ends, homeowners will have several options for making up the missed payments including a repayment plan, paying it back in one lump sum or adding the payments onto the end of their loan period. Homeowners interested in this option should contact their servicer to learn more.
One permanent loss mitigation option for reducing monthly payments is a loan modification. This option often requires additional paperwork that shows proof of a borrower’s hardship, but can permanently reduce their monthly mortgage payment lowering the interest rate or extending the loan payback period. If you have been affected by hardship, contact your servicer to discuss your modification options.
Any borrower can reduce their payments through a mortgage refinance. Borrowers can lower their interest rate or even refinance to remove their private mortgage insurance (PMI), which is added to loans where the borrower does not own at least 20% equity in the home. For conventional loans, this PMI payment can be removed by simply calling the servicer and following their steps. But FHA mortgages will need to be refinanced into a conventional loan in order to remove the PMI.
If you are interested in seeing how much you could save through a mortgage refinance, contact Credible to speak to a home loan expert and get all of your questions answered.
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