A recession is officially judged as two consecutive quarters of negative economic growth.
When a country goes into recession, it can mean financial hardship for the majority. Many individuals will experience reduced income as spending is cut or even lose their jobs altogether.
You may face a time of economic change, but your bills – including your mortgage – will continue to be due as usual. With talks of a recession on the horizon, you must understand your options to avoid being caught unprepared.
Here are some of the things you should be thinking about before a recession:
If You Can’t Make Mortgage Payments
If you are not able to make your mortgage payments, the first thing you should do is to reach out to our team. The sooner you reach out, the better – communicating early will provide you with the most options. Being open and honest about your affordability will prepare you in case of a recession.
Some mortgage relief alternatives available to you are forbearance or foreclosure relief. Forbearance occurs when a mortgage lender or servicer suspends or reduces your mortgage payments. This would only be for a certain period while you get your finances back in order.
These payments won’t be wiped out completely but rather delayed until you can catch up with them. In some situations, a mortgage lender or servicer might be prohibited from foreclosing on your home – providing foreclosure relief. For instance, foreclosures were banned for some time due to the pandemic.
If You Have Good Credit
If you are unable to obtain relief through forbearance (and have good credit), you may choose to refinance your mortgage. This would mean more manageable payments.
Adjusting Your Spending Habits Pre Recession
A household budget can be easy to overlook. However, it can be essential to maneuver tight economic conditions and adjust your spending habits. Building a budget is a simple way to examine your income and expenses. This allows you to set financial goals and track your spending before you feel the impact of a recession. The most challenging part of budgeting is sticking to it, so stick to your plan and hold yourself accountable.
Manage Your Emergency Fund
Building a budget may allow you to start or continue building your emergency fund. An emergency fund provides you with some cushion during a recession, knowing you have something to fall back on. The rule of thumb is that this fund should cover your necessities (i.e. car, mortgage, groceries) for three to six months.
In a Nutshell
A recession can be an opportunity to evaluate your finances and make a plan should the unthinkable happen. When the economy is good, it’s easy to be lulled into complacency. But now is a great time to reevaluate your overall finances and prepare for immediate or future monetary hurdles.