What Is Mortgage Forbearance?

Read Time: 6 minutes

Mortgage forbearance allows homeowners to pause or reduce mortgage payments during a short-term financial setback such as a job loss or major illness. This can help borrowers avoid payment delinquencies or foreclosure.

Lenders do not automatically grant forbearance. You’ll need to prove your financial hardship and make your request to the mortgage holder.

There are also some downsides if you are granted forbearance that you must consider as part of the process. However, one thing working in your favor is that it’s more profitable for a lender to keep the loan in good standing than to sell it in a foreclosure.

What To Do If You’re Facing a Financial Hardship?

Communication with your lender or servicer is the first step to seeing if you can qualify. Be prepared to document your financial hardship with employment separation documentation, medical bills, major encumbrances, and anything supporting your claim.

Lenders may also want to know how long the hardship is anticipated to last if that information is available.

Qualifications for forbearance vary by lender and circumstances, so your initial discussion should also entail finding out what those are to get the best handle on whether or not you qualify. 

One thing worth noting is that following a disaster or other qualifying event, some mortgage lenders have a time limit on how long you have to request forbearance.

If you do qualify, your lender will work with you to create a forbearance agreement. This will provide specific details on the length and amount of payments you’ll still need to make and how to repay the lender after the forbearance period ends.

You’ll also get an explanation of who interest accrues and if your lender will report your forbearance to credit reporting agencies, impacting your FICO score.

If you’re having financial difficulties after losing your home in a disaster, your property taxes will also continue to be collected. You may need to call your tax assessor to ask for a delay if you need it.

Tax assessors are usually lenient after a disaster and may suspend tax collections or forgive property taxes for people who have lost their homes.

Mortgage Forbearance Options

Initial forbearance plans typically last three to six months. However, you can often request an extension if you need more time to get your finances in order.

Some lenders may extend forbearance for up to a year and, in rare cases, even longer. It depends on your unique situation.

Forbearance agreements can be set up in a few different ways. Your lender and your situation may influence which types of agreements are available. The most common agreements are:

Paused payments are repaid when forbearance ends. Payments are stopped for a specific number of months, but you must pay the whole amount back when payments restart. 

Paused payments are repaid at the end of the mortgage. Payments are stopped for a specific number of months, and the accrued amount is repaid by adding more payments at the end of the mortgage or by taking out a new loan.

Payments are reduced and repaid during the mortgage term. You reduce payments during forbearance to a level you can afford and then spread repayments out later by increasing your monthly payment.

In all cases, you can still make a partial payment above what has been agreed upon. Remember that forbearance doesn’t eliminate payments. It only delays them.

At some point, you will be required to pay back that amount, so anything you can do to minimize financial impacts after the fact can be helpful in the long run.

If your mortgage is backed by Fannie Mae or Freddie Mac, you can request up to two additional three-month extensions for a maximum of 18 months of total forbearance.

If your mortgage is backed by HUD/FHA, USDA, or VA, you may request up to two additional three-month extensions for a maximum of 18 months of total forbearance. But to qualify, you must have requested an initial forbearance plan on or before June 30, 2020. Not all borrowers will qualify for the maximum.

Other Mortgage Options

Forbearance is one of several options to help you overcome your financial hurdles.

Forbearance changes loans in the short term, but a loan modification changes terms permanently. A modified loan can reduce monthly payments to make them more manageable with a lower interest rate spread out over a long time frame.

If it appears that your financial trouble may last for more than a year and you don’t see your finances improving anytime soon, a loan modification may be a better longer-term solution than forbearance.

Other strategies you may consider include reassessing tax deductions to increase your monthly income, asking for financial help from family and friends, or talking to your lender about other mortgage relief options.

If you need a lawyer, there may be resources to assist you, and you may qualify for free legal services through various legal aid sources such as your local bar association. If you’re a service member, consult with your local Legal Assistance Office.

Sometimes, your best or only course of action may be to sell your home to pay off your mortgage debt.

The Pros of Mortgage Forbearance

  • Temporarily stops or lowers monthly mortgage payments
  • Flexible repayment options
  • Can help prevent or pause foreclosure
  • You can still refinance or sell your home
  • Create lender goodwill by being upfront with your issues
  • Foreclosure costs are higher for lenders than the cost of forbearance 
  • You get to keep living in your residence during times of crisis

Cons of Mortgage Forbearance

  • There is a good chance your credit will take a hit
  • You must still repay the entire amount owed at some point
  • Monthly payments might increase when forbearance ends
  • Attempts to refinance could also be difficult
  • Forbearance may not be an option for rental properties or second homes 
  • If you sell your home, lenders can recover missed payments from that sale 

Where to Find Help With Mortgage Forbearance

HUD sponsors housing counseling agencies nationwide to provide free or low-cost advice on buying, renting, foreclosure avoidance, credit issues, and forbearance. You can search online for a housing counseling agency near you or call HUD’s interactive voice system at (800) 569-4287.

Housing counseling agencies are permitted to charge reasonable and customary fees for counseling and education services, provided certain conditions are met:

  • Agencies must provide counseling without charge to persons who demonstrate they cannot afford the fees
  • Agencies must inform clients of the fee structure in advance of providing services
  • Fees must be commensurate with the level of services provided

If you are facing foreclosure and want the assistance of a housing counselor, search the list of Foreclosure Avoidance Counselors or visit the Making Home Affordable program Q for Borrowers.

If you want to talk to a reverse mortgage counselor, please search here.

Final Thoughts

Forbearance can help if you’re struggling to pay your mortgage. Your lender or servicer will arrange for you to pause or make smaller mortgage payments temporarily, but you’ll still owe the full amount and need to pay it back at some point.

Forbearance is best suited for temporary financial hardships, such as if your home is damaged in a fire or natural disaster, you have medical issues, or you’ve lost your sources of income.

Buying time until you can sort through your issues means you can stay in your home without disruptions and avoid foreclosure for the time being. However, if your situation is likely to last longer than a year, it may be best to look at a loan modification or selling your home to satisfy your debts.

The key is communicating with your lender as early as possible to develop the best agreement that protects both parties’ interests.

Kirk Haverkamp

Kirk Haverkamp is an award-winning reporter and editor with more than 25 years of experience in journalism and public relations. He has contributed to Credit.com, Investopedia, and MetroMode online magazines, among other work. He has a B.A. in English from Hope College and a Master’s Degree in journalism from Michigan State University.

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