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If you've experienced an emergency and can't pay your mortgage, take a deep breath: You may have some options other than foreclosure.
One potential option is a mortgage forbearance, which is an agreement you make with your lender that provides relief from your payments. Typically, this relief comes in the form of either lower payments or paused payments. But unlike a loan modification, which is permanent, a mortgage forbearance is only temporary and must be repaid later. A forbearance is meant to help you get through a rough patch and get current on your payments so you can avoid foreclosure.
How Does a Mortgage Forbearance Work?
Mortgage forbearance is for homeowners who are or will be delinquent on their mortgages due to a temporary financial hardship, though lenders each have their own policies and terms for how they handle it. The terms of forbearance can also vary depending on what type of loan you have, but you will usually have one of two options: either your payments will be reduced or they will be suspended altogether for a set time period. The lender will agree not to foreclose on your home during this time, which can last for a few months or up to a year, as long as you abide by their terms.
The forbearance agreement will outline your obligations, which usually means resuming your usual full mortgage payment once the forbearance period ends. Your debt is simply deferred, not forgiven, so you will also be responsible for paying the amounts you missed during the forbearance period. Some lenders require you to pay the entire amount at once when the period is over.
In other words, if your payments were paused for six months, you might owe six months of mortgage payments in one lump sum. Other lenders might give you some time to repay the missed amounts, so find out the terms and make sure you'll be able to afford to repay this amount before you move forward with forbearance. If your forbearance period ends and the hardship you've experienced isn't yet resolved, some lenders may extend your forbearance to give you a little more time.
A mortgage forbearance is intended to provide temporary relief if, for example, you've had a health emergency, lost your job or experienced a natural disaster. If you can't pay your mortgage because of bigger financial problems, such as an interest rate that's too high, a forbearance isn't a viable solution since you will have to resume your payments once the forbearance period ends. In that case, it might make more sense to look into a loan modification, which is a permanent change to your mortgage loan to make it more affordable.
Is Mortgage Forbearance Bad for Your Credit?
A mortgage forbearance might not affect your credit as negatively as you'd expect. A lender isn't obligated to report it to the credit bureaus, and if they do, it might not hurt your credit if they don't report your payments as late. Keep in mind that having late payments or a foreclosure on your credit report looks much worse than a forbearance.
So if you're at risk of making late or missed mortgage payments, or you're getting closer to foreclosure, going through mortgage forbearance can help protect your credit. That's because during this time, any missed payments won't be considered missed since your lender agreed to the plan, and they won't foreclose during this time.
How to Get Forbearance on a Mortgage
If you've experienced a hardship and you can't pay your mortgage, you might want to see if mortgage forbearance is an option. To get started, call your loan servicer immediately to let them know what's going on and ask about their options for forbearance or hardship. Call them as soon as you know you won't be able to make a payment to avoid having missed payments go on your credit report.
Keep in mind that guidelines vary from lender to lender, and some may have rules, such as requiring the hardship to be within a certain amount of time of your request. The lender isn't obligated to approve your request, so if you feel like you're out of options, you can contact a government-approved housing counselor to help you figure out the best path forward.
Keep an Eye on Your Credit
If you go through the process of getting a mortgage forbearance, it's wise to monitor your credit regularly to make sure you aren't negatively affected. If your lender agreed they won't mark your payments as late or missed, check your credit periodically to ensure they stick to this. You can get your free credit report through Experian online.