What to Do If You Can’t Pay Your Mortgage or Rent During the Coronavirus Outbreak

As the novel coronavirus stifles the economy and triggers mass layoffs, many people are concerned about how they’ll pay their mortgage or cover their rent in coming months.

In fact, more Americans are worried about unexpected expenses (79 percent) and paying their bills (68 percent) than catching COVID-19 (63 percent), according to a survey of 1,200 people that was conducted by personal finance site FinanceBuzz. When asked to pin down their top worry, Americans cited an even split between health (50 percent) and financial (50 percent) concerns.

What should you do if you’re having trouble keeping a roof over your head? Depending on what type of mortgage you have or where in the country you’re renting, your options for relief can vary widely. 

“The first thing you should do if you are having trouble paying your rent or mortgage payment is to call your landlord or mortgage servicer as soon as you can,” says Matt Frankel, a certified financial planner and writer at personal finance site The Ascent. “Widespread evictions and foreclosures are no good for anyone, and most major lenders have already issued statements pledging to work with any borrower who is having trouble paying.”

It’s important to start a conversation with who you’re paying bills to, rather than simply stopping payments altogether. Missing a mortgage payment without formally deferring it, for example, can hurt your credit score and cause your loan to go into default. 

The federal government has announced plans to halt foreclosures, but that only applies to loans backed by Fannie Mae and Freddie Mac or the Federal Housing Administration, or FHA. The good news is that many homeowners do fall in this category, as loan giants Freddie and Fannie guarantee nearly 50 percent of mortgages, and the FHA currently insures an additional 8 million single-family mortgages.

Homeowners who are facing financial stress should reach out to their lenders to discuss options, which could include forbearance, a hardship option that allows you to make lower payments. It’s important to note that forbearance usually tacks on extra interest since you’re extending your loan. 

Another option is deferring your mortgage. 

Most lenders and servicers are offering generous options when it comes to deferring mortgage payments during the COVID-19 pandemic, Frankel says. But you do need to ask for them; this isn’t something that happens automatically. 

“If you need relief on your mortgage, don’t wait until your due date arrives—pick up the phone and call your mortgage servicer, which is the company you send your payment to, right away,” Frankel says. “Your lender should be able to offer you a confirmation in writing that your payment is in fact deferred.”

A deferred mortgage payment allows you to skip your scheduled payments for a certain amount of time, but you’re still responsible for repaying them, Frankel says. In most cases, any deferred mortgage payments during the COVID-19 pandemic will be added to the end of your loan. For example, if your loan is scheduled to be paid off in January 2025 and you defer your next two mortgage payments, your payoff date will be stretched to March of that year, he explains.

Even if you defer a payment or two, you should be fine when it comes to taxes and homeowners insurance, Frankel says. 

“Lenders require you to maintain a certain level of cushion in your escrow account, so even with a few deferred payments, there should be enough money to pay these expenses,” he says. “Having said that, this could cause your escrow reserves to drop below your lender’s minimum, which would likely result in a slightly higher monthly escrow payment in the future to make up the shortfall.”

The bottom line? The earlier you can make the call, the better, as servicers may be dealing with a deluge of calls in coming days.

“This is a fast-moving situation and a lot of companies are still figuring out what their policies will be, and those policies may change as the situation evolves,” says Adrian Nazari, the CEO and founder of Credit Sesame, a personal finance site.

For instance, Ally Home Loans announced that its customers could defer their payments for up to 120 days with no impact to their credit scores and no late fees on payments due during this period (though interest will still accrue). Bank of America has said it will work with its customers on a “case-by-case” basis if they want to defer payments, and the lender has paused foreclosures. 

Meanwhile, renters are facing an even tougher situation. They’re navigating a patchwork of different laws as eviction moratoriums vary across city and state lines. In many cases, it’s up to individual landlords to be willing to work out payment arrangements for those who have been laid off or had their hours slashed.

Several cities like New York, Seattle, and San Francisco have enacted a temporary restriction on evictions. In Los Angeles, the mayor issued a temporary moratorium on evictions, and tenants have up to six months to repay any back rent due, though the City Council may extend the repayment period.

Again, it’s possible some renters could work out a plan with their landlords to get caught up on rent, like skipping a month’s payment and spreading the balance out over the course of the next six payments. Still, a payment arrangement could cause financial pressure down the line for those sheltering in place who have lost their jobs and are struggling to find temporary work in an oversaturated gig economy.

It’s likely not all landlords will be so willing to budge on payments, especially since they also need to pay their bills, which could include a mortgage on the property you’re leasing. 

Some nationwide momentum is building for rent freezes amid the pandemic, because even if evictions are paused, owing hefty back rent payments in a few months will put a financial strain on many people who have been out of work. 

In New York, Sen. Michael Gianaris, is proposing a 90-day rent suspension for those whose jobs have been affected by COVID-19. In Los Angeles, a petition requesting a moratorium on collecting rent or mortgage payments has garnered more than 143,000 signatures. And in Chicago, 25 community groups have signed a letter asking for mortgage and rent freezes.

Rep. Alexandria Ocasio-Cortez this week tweeted: “Eviction, foreclosure, & shut-off suspensions are good but they are nowhere near enough. People don’t want to be in the position where the moment the orders are lifted there will be a marshal at their door. They still feel like rent is due unless a payment moratorium is called.”

To help support renters who may be out of work, the National Multifamily Housing Council released a statement encouraging the apartment industry to halt evictions for 90 days for those who can show they have been financially impacted by the COVID-19 pandemic. The statement also asks that the apartment industry avoid rent increases for 90 days, create payment plans for residents unable to pay their rent because of the outbreak, and waive late fees for those affected renters.

“This crisis is testing all of us—every industry, every family,” the council’s president, Doug Bibby, said in a statement. “No one should lose the roof over their head during a pandemic.”

Congress is working to pass a $2 trillion economic stimulus package that could get $1,200 checks to most Americans, but it’s unlikely that money will be in hand before April 1, or when rent or mortgage payment due dates roll around. 

Median monthly rent in the United States is just under $1,600, according to Zillow. The median monthly mortgage payment is $1,100.

While the rent and mortgage freezes may be a best-case scenario for many, having a back-up repayment plan in place in case that never happens, or you’re not covered by it, might ease some of your financial anxiety.

Of course, this is an unprecedented situation and you may be dealing with a myriad of unknowns: When will your job resume? Do you qualify for unemployment? Will your company remain in business? Will you need extra room in your budget for medical costs? 

When you layer in all these points of uncertainty that could affect what your budget looks like in three months, or six months, or even further down the line, it can feel daunting to come up with a repayment plan. However, creating a such a plan—whether that’s forbearance that spreads out delinquent payments over months or a payment plan you make individually with your landlord—could relieve some of the stress that comes with owing a large lump sum to reinstate your mortgage or cover months’ worth of rent.