What Happens to Mortgages During War?
What happens to your mortgage during war depends on if you’re a civilian or active military service member. In the United States, civilians are required to continue making regular mortgage payments as outlined by their loan agreement.
However, the rules are different for active military service members as they are protected by the Servicemembers Civil Relief Act (SCRA). The act has provisions and applies to different service members and has financial protections in place for service members.
Servicemembers Civil Relief Act (SCRA)
The SCRA provides legal and financial protection for military service members in the event that legal or financial transactions negatively affect their rights during military or uniformed service. This act applies to the following service members:
- Active duty members of the Army, Marine Corps, Navy, Air Force, and Coast Guard
- Members of the reserve component when serving on active duty
- Members of the National Guard component mobilized under federal orders for more than 30 consecutive days
- Active duty commissioned offers of the Public Health Service or the National Oceanic and Atmospheric Administration
If you can’t afford to pay your mortgage during the war and are an active service member, you have legal protection under SCRA. In addition, the SCRA rights can be exercised by anyone holding power of attorney for the service member. Knowing which protection applies to you is important.
There are five major protections under the SCRA that apply to service members when it comes to their mortgages, debts, and property.
Protection #1) Interest Rate Reduction on Any Pre-Service Loans To a Max of 6 Percent
This protection applies to auto, home, student loan, or credit card debt taken out prior to becoming a service member. This is also commonly referred to as “pre-service obligation”. This protection allows you to get your interest rate reduced on any of your loans to a maximum of 6% per year. This can be a massive benefit to service members with high interest credit cards.
In order to qualify, you must send your lender a letter in writing. In addition, you must include a copy of your active military order from your commanding officer that shows the date your active duty service began. Once you make your request, your lender has to reduce your interest rate to 6% for the entire time you are on active duty.
In addition, your lender can’t add the amount of interest above 6% back on the loan after you return from active duty. Lastly, your lender can’t revoke your loan or change the terms of your loan if you exercised your SCRA rights. Knowing your financial rights as an active military service member is a important.
Protection #2) Legal Protection Against Default Judgments in Civil Cases
Another protection under SCRA for active service members includes legal protection in the event of a lawsuit while you serve. These include protection from a default judgment in a civil action. An example of a default judgment is if a court votes in favor of the plaintiff that sued you when you didn’t appear in court to defend yourself.
Legal protection under SCRA includes:
- The party suing you must file an affidavit with the court stating whether or not you are in active duty service.
- If you are currently an active due service member and haven’t appeared in a case against you, the court can’t enter a default judgment until after it appoints an attorney to represent you.
Protection #3) Protection Against Repossession of Property
In certain situations, the SCRA prohibits creditors from repossessing your personal property, including your vehicle without a proper court order. Even if you violate your contract or lease agreement and fail to make monthly payments, the creditor must first file a lawsuit and get an order from the judge before they can legally repossess your vehicle or property. This specific rule applies to you if you have:
- Purchased or leased an automobile or other personal property, before entering active duty service
- Making a deposit or installment payments on a vehicle, or personal property, before entering active duty
It’s worth noting that these protections are in addition to protections extended to you under state law.
Protection #4) Mortgage Protection Against Foreclosure
So what happens to mortgages during the war?
If you took out a mortgage prior to entering active duty service, the lender or bank can’t foreclose on your property without getting a court order. This foreclosure protection applies while you are on active duty and up to 1 year after leaving active duty.
This protection is also extended to states that do not require a court order to foreclose on your property.
Under the SCRA mortgage protection clause, the lender or bank must pause their foreclosure proceedings if a service member is on active duty and provided that their ability to pay the loan is materially affected by their active duty status.
Protection #5) Termination of Residential Housing and Auto Lease Without Penalty
This rule provides service members with the right to terminate the residential property lease that is occupied by them or their dependents. If you entered into a lease agreement prior to active duty service, or are currently serving on active duty and you happen to receive Permanent Change of Station (PCS) or deployment orders for a period of at least 90 days, you can terminate your housing lease without facing a penalty.
To terminate your housing lease, you must submit a written letter of termination to your landlord. In the letter you must notify them and send a copy of your orders and a letter from your commanding officer. It’s important that this is sent with the return receipt requested.
In addition, this SCRA rule extends to auto leases. It allows service members to terminate auto leases without penalty. To terminate your lease, either you or someone exercising power of attorney, must submit a written letter to the lender notifying them and provide a copy of your orders.
War is a very real reality in today’s world, especially for developing countries. Knowing what rights you have when it comes to your financial and legal protection is extremely important. If you are a service member of the military you have additional rights as well as financial and legal protection that is available to you. Knowing these can help you in times of conflict and in war.
Do Mortgage Rates Go Down During War?
Generally speaking, interest rates on mortgages tend to go down during war or major conflicts. When a major conflict or war breaks out, investors tend to seek safer asset classes. Wars and conflicts cause economic uncertainty, so the Federal Reserve tends to keep rates lower to accommodate that uncertainty.
When Russia annexed Crimea back in 2014, 30-year fixed interest rates fell about 25 basis points from 4.50% to 4.25%. The rate drops tend to be short-lived if there is a quick resolution to the conflicts.
What Happens If Your House is Destroyed in War?
If your home is destroyed in an act of war, it is unfortunately not covered by your homeowners’ insurance policy. Wars are part of a majority of homeowners’ exclusions. It would be rare to find a homeowners insurance company that would cover the war. If your home is ever destroyed due to war, you should seek assistance from your local government.