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When you’re a homeowner, life’s curveballs — such as a job loss or an illness resulting in hefty medical bills — can do more harm than just forcing you to cancel that long-awaited vacation. They could also cause you to fall behind on your mortgage payments and risk foreclosure. Fortunately, mortgage forbearance can offer temporary financial relief while you get back on your feet.
The Mortgage Banker Association estimates that around 235,000 American homeowners were in forbearance plans as of October 2024. While that only represents 0.47% of home loans, it’s still worth understanding how mortgage forbearance works in case you need it.
Learn more: What to expect when facing foreclosure
In this article:
What is mortgage forbearance?
Mortgage forbearance is an arrangement between you and your lender allowing you to pause or lower your payments for a specified time if you’re struggling to afford your monthly payments. However, mortgage forbearance is not a grant. When your forbearance period ends, you’ll need to repay the amount you owe on those reduced or paused payments. The forbearance period typically lasts up to six months, though it may depend on your mortgage servicer.
How to request mortgage forbearance
You can request mortgage forbearance by contacting your mortgage lender or servicer and explaining your situation. They’ll explain to you what forbearance or hardship options they have available. Eligibility requirements vary by lender, but some may require you to provide proof of financial hardship, in the form of recent bank statements or other relevant financial documents.
Yahoo note: What’s the difference between your mortgage lender and servicer? The lender is the company that initially loaned you the money to buy your house. It’s not uncommon for a different company — the servicer — to take over your mortgage loan to process your payments and handle situations like forbearance. However, sometimes, your original lender is also your servicer.
Read more: Do you have home buyer’s remorse? Here’s what to do next.
Pros and cons of mortgage forbearance
Mortgage forbearance can be a lifesaver when you’re struggling to keep up with mortgage payments, but it also comes with a few downsides.
Pros
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Short-term financial relief. A mortgage forbearance can temporarily pause or lower your monthly payments, offering some immediate financial relief.
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Can prevent foreclosure. Lenders can foreclose on your home to recoup financial losses if you stop making monthly payments. Requesting a mortgage forbearance can prevent this, at least in the short term.
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Less impact on your credit. Foreclosures can stain your credit report for up to seven years, whereas forbearance might not directly affect your credit. However, some lenders may report your forbearance status to the credit bureaus, which could damage your credit score. Ask your mortgage lender about its process before applying for forbearance.
Cons
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Interest accrues. Even when you’re in forbearance, interest will still accrue on the loan balance, and you must repay this amount once forbearance ends.
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Unpaid payments are not forgiven. Mortgage forbearance does not automatically forgive the amount you don’t pay during that period. It only temporarily pauses or reduces your monthly payments to help you avoid foreclosure.
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You could end up in financial trouble. You must repay your lender any missed payments once the forbearance period ends. If your financial situation doesn’t improve by then and you can’t repay that amount, you can damage your credit and potentially lose your home.
Read more: How a short sale can help you avoid foreclosure
Does mortgage forbearance affect your credit?
It depends on whether your mortgage lender reports your forbearance to the credit bureaus. You may have difficulty getting approved for loans in the future if your lender decides to do so. However, if they don’t, your credit score should be unscathed. Either way, requesting mortgage forbearance is much less damaging to your credit score than missing payments and getting your house foreclosed.
Is mortgage forbearance a good idea?
Mortgage forbearance is worth considering if you’re facing a short-term financial setback. However, forbearance doesn’t mean your payments are erased or forgiven. You must still repay any missed payments at the end of the forbearance period.
So, if you don’t see yourself getting out of your financial tough spot anytime soon, requesting a mortgage forbearance may not be the best idea since you might struggle to make the necessary payments when your forbearance period ends. In this case, you may need to take a different route.
Alternatives to mortgage forbearance
Mortgage forbearance isn’t your only solution if you fall behind on mortgage payments. Consider these alternatives that won’t require you to sell your home.
Loan modification
Unlike mortgage forbearance, loan modification is a long-term financial relief option that permanently changes your loan terms to make your payments more manageable. This could mean extending the repayment period to lower your monthly payments, reducing the principal amount, or decreasing the interest rate.
Mortgage refinance
A mortgage refinance essentially replaces your current mortgage with a new one, typically one with a better interest rate or different repayment term length. By refinancing your mortgage, you could lower your monthly payments and repay the loan faster. However, most lenders will only allow you to refinance a conventional loan if you have a 620 credit score and at least 20% equity in the home. FHA loans, VA loans, and USDA loans each have their own requirements regarding refinancing.
Dig deeper: Mortgage refinance — How to get started
Repayment plan
A repayment plan could be a good fit if you only expect to miss a couple of monthly payments or if your forbearance period is ending and you’re still not in the financial position to repay your mortgage. With a repayment plan, lenders will divide and add your missed payments to your future mortgage payments. This option can be helpful if you don’t mind paying a little extra each month for a period of time later on. However, if you think your financial problems will last more than a few months, a repayment plan probably isn’t for you.
Mortgage forbearance FAQs
What is the difference between mortgage modification and forbearance?
The main difference between mortgage forbearance and modification is that the former temporarily reduces or pauses your payments. In contrast, modification permanently alters your loan terms to reduce your monthly mortgage payments.
Can you be denied mortgage forbearance?
Yes. You can be denied mortgage forbearance if you can’t prove financial hardship, have a less-than-ideal credit score, or have a history of making late payments.
Is forbearance good or bad?
Resorting to mortgage forbearance is better than missing payments on your home loan and risking foreclosure, but it shouldn’t be a long-term solution for your financial problems. If you're dealing with money problems that may last a while, consider alternatives like refinancing or a loan modification program.
This article was edited by Laura Grace Tarpley.
