What Is Mortgage Forbearance, And How Does It Work?

Experiencing financial hardship is stressful for everyone, but it’s especially nerve-wracking for homeowners. Falling behind on your mortgage payments could cause you to lose your house. If you find yourself in this situation, mortgage forbearance could be a helpful option.

What Is Mortgage Forbearance?

Mortgage forbearance allows you to temporarily stop making your mortgage payments, or make smaller payments, due to financial hardship. Some borrowers need to request forbearance after losing a job, going through a divorce or dealing with unexpected medical bills.

However, mortgage forbearance doesn’t erase the debt – you’re still responsible for paying your remaining balance. You will repay the difference at a later date. Forbearance gives borrowers a chance to get back on their feet financially and avoid foreclosure.

Mortgage Forbearance Vs. Deferment

Forbearance is often compared to deferment, but they aren’t the same thing. If you’ve temporarily paused or adjusted your mortgage payments due to forbearance, deferment is one way to make up for these missed payments. 

If your payments are deferred, you and the lender have agreed to add your overdue payments to the end of your loan term. Once the loan term ends, the full amount is due as a lump sum payment. Any loans that are deferred won’t continue to accrue interest.

What’s Your Goal?

Home Purchase

Home Refinance

Tap Into Equity

How Does Mortgage Forbearance Work?

If you’re experiencing financial hardship, you’ll start by contacting your loan servicer to discuss your options. Your lender can tell you whether you qualify for mortgage forbearance and any alternative options you have.

When you apply for mortgage forbearance, you’ll have to provide your lender with proof of financial hardship. You can do this by sharing bank statements or pay stubs. And you’ll have to let your lender know whether the forbearance will be short-term or long-term.

If your lender approves you for mortgage forbearance, you’ll either make reduced payments or stop making your payments altogether for a specific period of time. The terms of the agreement will vary depending on your lender, but forbearance usually lasts for 3 to 6 months. It’s crucial to continue to make on-time payments until your lender grants you forbearance.

Who Is Eligible For Mortgage Forbearance?

It’s up to your lender to determine whether you’re eligible for mortgage forbearance. Mortgage forbearance is usually reserved for borrowers experiencing significant financial hardship.

How Long Does Mortgage Forbearance Last?

Initial mortgage forbearance typically lasts from 3 to 6 months. However, once you’re approved, it’s possible to extend the terms for up to a year.

What Happens After Mortgage Forbearance Ends?

When you’re nearing the end of mortgage forbearance, it’s a good idea to start talking to your lender and considering how you want to end it. Here are some of the options available to homeowners.

Repay The Full Amount Immediately

You’re responsible for repaying the payments you missed during forbearance. One way you can do that is by repaying the full amount once forbearance ends.

For example, let’s say your monthly mortgage payment is $1,500 and you received 3 months of forbearance. Once you exit forbearance, you’ll pay your usual mortgage payment of $1,500 and $4,500 for the 3 months of payments you missed. After that, you’ll resume making your regular mortgage payments.

If you have the money, this is the simplest way to catch up on your missed payments. However, this may not be an option for many borrowers since you were in forbearance due to ongoing financial hardship.

Repay The Full Amount At The End Of Your Mortgage

Another option is to repay the full amount at the end of your mortgage. Using the above example, instead of paying $4,500 when your forbearance ends, you’ll pay the full amount when your mortgage term ends. The benefit of this option is that you can catch up on your payments when you’re in a more stable place financially.

Repay The Full Amount Over Your Mortgage Term

Another option is to modify your monthly payments to repay the full amount over your loan term. By modifying your mortgage payments, you adjust your monthly payments to account for the missed payments.

Pros Of Mortgage Loan Forbearance

Loan forbearance can provide a necessary reprieve for homeowners experiencing financial hardship. Here are the biggest benefits of choosing this option:

Cons Of Mortgage Loan Forbearance

Here are a few things to consider before applying for forbearance:

How To Request Forbearance On A Mortgage

Here are the steps you’ll take to request mortgage forbearance.

1. Reach Out To Your Lender Or Loan Servicer

You’ll start by contacting your loan servicer and asking about mortgage forbearance. You’ll need to explain why you want forbearance and how long you expect it to last.

2. Gather Documentation

If you’re claiming financial hardship, your lender will likely want to see supporting documentation. This can include things like bank statements, medical bills and pay stubs.

3. Receive Your Forbearance Agreement

Your lender will send you a formal statement approving you for mortgage forbearance and outlining the details of the agreement. If you agree to the terms, you’ll sign and return the agreement to your lender.

Mortgage Forbearance Alternatives

If you don’t qualify for mortgage forbearance, here are some alternatives to consider:

FAQ

Check out the following frequently asked questions about mortgage forbearance.

The Bottom Line

If you’re going through a financial hardship, forbearance can provide temporary relief and give you time to recover financially. Forbearance usually lasts 3 to 6 months but can be extended up to a year.

Kevin Graham contributed to the reporting of this article.