Forbearance

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What is Forbearance?

Mortgage forbearance is an agreement between a lender and borrower if the borrower experiences financial difficulties. It is when a lender agrees to a temporary change in the initial mortgage terms. For example, the lender may decide to reduce or even suspend mortgage payments for a period of time.

During this time, the lender agrees not to start the foreclosure process during a forbearance. Instead, the agreement helps the borrower become current on his or her payments again using a defined mortgage plan.

 

How Does It Work?

A mortgage forbearance typically lasts from one month to a year, depending on your situation and lender. During this period, your payments may be reduced or suspended.

After the period, you’ll be responsible for the unpaid amount on top of your initial monthly payments. You can either pay the outstanding amount in a lump sum or by agreeing to a payment plan, which includes interest.

 

How to Apply?

As soon as you find yourself in a temporary hardship that may put you behind on your mortgage payments, you should contact your mortgage company or the Fannie Mae Mortgage Help Network immediately. You’ll need to show that you are eligible for a forbearance by providing the appropriate documents, such as mortgage statements, monthly debt payments, and income details.

Your mortgage company will also need to know about your current hardship and the reasons for your request. Once eligibility is confirmed, your lender will discuss the length of your forbearance period, whether to reduce or suspend your mortgage payments, as well as establish the terms of repayment.

 

Pros

Avoid foreclosure. The primary benefit of a forbearance is to avoid foreclosure. Forbearance allows delinquent borrowers a period of time to get back on their feet and stay in their home.

Reduced or no payments. A forbearance alleviates some financial pressure while you recover from a temporary financial struggle.

 

Cons

Not a long-term solution. Your mortgage payments are essentially stalled for a period of time, due to unforeseen circumstances such as unemployment or medical reasons. However, the unpaid amount will continue to accrue. Once the forbearance period is over, you will need to pay the outstanding amount.

Forbearance is designed to be a short-term or temporary solution. Therefore, the borrower must resolve his or her financial hardship by the time the forbearance period ends.

Late fees. You may be charged late fees for the missed payments.

May negatively impact your credit. Your lender may report the modified payment to the credit bureaus. Alternatively, your bank or financial institution may report the payments as past due.

 

Forbearance vs. Mortgage Deferment vs. Loan Modification

Forbearance is a temporary solution that reduces or suspends your payments. It is similar to a deferment, which also allows a borrower to skip payments for a set period of time.

Deferments are often granted in addition to another mortgage relief option, such as a loan modification.

A loan modification is a permanent change to your mortgage. Your loan term and interest rate may be adjusted to give you a lower payment.