What Is a Mortgage Forbearance?

What Is Mortgage Forbearance?

Mortgage forbearance is an option some lenders offer that allows you to pause or reduce your monthly mortgage payments during a financial hardship. A lender may grant a forbearance with the expectation that regular payments will resume in a short time, usually within 12 months. Any payments that are paused must still be repaid with interest. Forbearance payment relief options typically include:

• Reduced monthly payments for a set period of time
• Full suspension of payments until the forbearance period ends

You can request a forbearance from your lender or loan servicer. If approved, your lender will outline the terms of your forbearance, including your relief options, how long it will last, how you'll repay it and how your account will be reported to the credit bureaus.

Deferment vs. Forbearance

Mortgage forbearance and deferment are similar, and these terms are sometimes used interchangeably. However, while both let you temporarily pause your mortgage payments, they work differently.

With forbearance, interest generally continues to accrue on your full balance while your payments are paused or reduced, and payments are not added to the end of your loan term. Instead, you repay the missed payments when the forbearance period ends, either in a lump sum or installments.

With a deferment, your missed payments are typically moved to the end of your loan term. If deferment is used on its own, interest could accrue on the deferred amount. If deferment follows forbearance, however, additional interest will not usually accrue on the deferred amount.

Learn more: Options if You Can't Pay Your Mortgage

Who Qualifies for Mortgage Forbearance?

The only way to find out if you qualify for mortgage forbearance is to ask your lender or loan servicer. Be ready to explain your financial difficulties and why you expect them to be temporary. Keep in mind, lenders generally want to know whether your hardship is a legitimate short-term issue and whether you can expect to resume payments when the loan forbearance ends.Examples of short-term hardships forbearance might address include:

• Temporary loss of income
• Divorce or separation
• Short-term increase in household expenses (as for a medical issue)
• Property damage from extreme weather or a natural disaster
• Death of a co-borrower
• Job-related relocation

Before contacting your lender, gather documentation that offers evidence that you'll be able to make repayments once forbearance ends. For example, an employment offer or an insurance payout can show how your situation is improving. A document explaining a medical leave or a short-term disability claim could show how your hardship is temporary and may improve your chances of approval.

Tip: Contact your lender before you miss a mortgage payment. If you become delinquent before getting a forbearance, your lender may report the missed payment to the credit bureaus, which could hurt your credit.

What Happens When Forbearance Ends?

When the forbearance period ends, you'll need to resume your mortgage payments and repay the missed amounts through an approved option, such as:

• Lump-sum payment: You make one large payment that covers the portion of your regular payments you didn't make during the forbearance period.
• Repayment plan: Your missed payments are spread out over a set period, typically up to a year, on top of your regular monthly mortgage payment.
• Payment deferral: The amount you owe gets added to the end of your loan. You resume your normal payments now and pay back the deferred balance when you sell, refinance or reach the end of your loan term.
• Mortgage modification: If your financial situation hasn't improved, your lender may permanently change your loan terms with a mortgage modification, such as lowering your interest rate or extending your repayment period, to make your monthly payments more affordable.

Learn more: What Happens When Mortgage Forbearance Ends?

Pros and Cons of Mortgage Forbearance

Mortgage forbearance can give you breathing room during a financial hardship, but the trade-offs in extra costs and potential credit impacts are important to consider first.

Does Forbearance Affect Credit?

Whether mortgage forbearance affects your credit depends on your lender and whether you were current on your mortgage when it was granted. If your account was current at that time, your servicer must report it as such while you're in forbearance.However, your servicer may report your account as being in forbearance to the credit bureaus, which future potential lenders may see when they review your file. That could affect your eligibility and the rates you qualify for when applying for new credit. Lenders aren't required to report that your mortgage is in forbearance, so before entering into a forbearance agreement, check with your lender to see what their policy is.

Tip: Get your forbearance agreement in writing before you stop making payments. If you miss a payment without an agreement in place, your lender could report it as delinquent, which could do serious damage to your credit score.

Is Mortgage Forbearance a Good Idea?

Forbearance may be a sound option to help you navigate a tough but temporary financial period, but it may not make sense in some situations.

When to Consider Mortgage Forbearance

• When your hardship is temporary: You've lost income or taken on unexpected expenses, but you have a reasonable timeline for when things will stabilize.
• When you can handle eventual repayment: You know how you'll resume payments and can realistically handle one of the repayment options your lender offers.
• When you're still current on your mortgage: Applying before you miss a payment protects your credit and gives you more leverage with your lender.

When Forbearance May Not Be a Good Fit

• When you don't have a plan to repay: Mortgage forbearance may not be a good option if you cannot realistically commit to resuming regular mortgage payments and repaying what you missed when forbearance ends.
• When your financial issues are long term: If your income has permanently changed or you're unsure when things will improve, a loan modification or other long-term solution may be a better fit.
• When you're already significantly behind: If you've missed multiple payments, forbearance alone may not be enough. Consider working with a government-approved housing counselor to create a workable plan.

How to Apply for Mortgage Forbearance

Follow these steps to request a mortgage forbearance:

1. Contact your lender or loan servicer. You can generally do this over the phone or on the company's website. Ideally, reach out before you miss a payment.
2. Explain your hardship. Describe what happened, what's causing the financial strain and when you expect it to be resolved. Request a temporary payment reduction or a suspension of payments.
3. Gather your documentation. Your lender will likely want to see proof of income, a breakdown of your monthly expenses and any other paperwork tied to your hardship. That could include a layoff notice, medical bills or an insurance claim.
4. Review the terms carefully. Before you agree to anything, make sure you understand how long the forbearance will last and what (if anything) you'll owe during the period. You'll also want to know how repayment will work and how your lender will report your account to the credit bureaus.
5. Get everything in writing. Don't stop or reduce your payments until you have a written forbearance agreement. Keep all emails, letters and notes from phone calls in case there's ever a question or dispute about your forbearance terms.

Alternatives to Forbearance

Forbearance isn't your only option if you're struggling to make your mortgage payments. Depending on your situation, one of these alternatives may be a better fit.

• Mortgage refinance: If interest rates have dropped since you took out your loan, refinancing may lower your monthly payment. You'll need a credit score of at least 620 and sufficient equity to qualify. Closing costs typically run 2% to 6% of the loan amount, so run the numbers before you commit.
• Loan modification: Unlike forbearance, a mortgage modification permanently changes your mortgage terms. Your lender may lower your interest rate, extend your repayment period or both to reduce your payment. Borrowers can typically request a modification after a forbearance period ends, and you may need to demonstrate your hardship and provide documentation of your income and assets to qualify.
• Government assistance programs: If you're in financial distress, federal, state and local programs may be able to help with your mortgage. The Department of Housing and Urban Development (HUD) and the Department of Veterans Affairs both offer assistance options, and your lender or a HUD-approved housing counselor can help you find programs in your area.
• Short sale: If you owe more than your home is worth and can't keep up with payments, your lender may let you sell the home for less than the remaining balance. You won't make a profit, and your lender would need to agree to forgive the remainder of the loan. A short sale can hurt your credit score, but it's less damaging than a foreclosure.
• Deed in lieu of foreclosure: If you can't keep your home, this arrangement lets you turn over the property deed to your lender and walk away from the loan. You'll give up any equity you've built, and you could owe taxes on any balance your lender forgives. A deed in lieu of foreclosure still hurts your credit, but typically less than a foreclosure, which stays on your report for seven years.
• Chapter 13 bankruptcy: Filing for Chapter 13 bankruptcy could allow you to keep your home if your financial difficulties are tied to debts other than your mortgage. A court establishes a three- to five-year repayment plan for your debts while you continue making mortgage payments. This will have a serious negative impact on your credit, with a Chapter 13 filing remaining on your credit report for up to seven years, so explore every other option first.

Frequently Asked Questions

Monitor Your Credit During Forbearance

If you're dealing with a temporary financial hardship, mortgage forbearance can help you stay in your home and avoid foreclosure while you get back on track. But it's best to consider it only if you're certain your hardship is temporary. You'll also need to be able to resume payments and account for what you missed once the forbearance period ends.While you're in forbearance, keep a close eye on your credit. If your lender agreed to report your account as current, checking your credit report can help you confirm it. You can check your credit report and FICO^® Score^Θ for free from Experian to see your score and learn how to improve it.