What is Mortgage Forbearance?
Each mortgage servicer will have unique guidelines and forbearance policies to navigate. Whether they offer a lower monthly payment or simply allow you to skip payments, the most important thing to remember is that forbearance is not free. The payments will need to be made up at some point during the lifetime of the loan. Working with your servicer to understand forbearance policies will help you to avoid late penalties and the risk of foreclosure.
What Is Mortgage Forbearance?
- It is a temporary pause on your monthly home loan payments.
- Forbearance is granted by the lender in an effort to not require foreclosure.
- Lenders and borrowers work together on the terms of the forbearance.
- Borrowers will need to provide some kind of proof of financial hardship in order to justify the postponement.
Mortgage forbearance is an option for you if you are behind on mortgage payments, close to missing payments, or any other temporary hardship: divorce, job loss, unfortunate accident, disability, etc. The keyword here is temporary. As stated before, the payments will need to be made up at some point during the lifetime of the loan. Use it if you need it.
How Mortgage Forbearance Works
If you plan on requesting a mortgage forbearance, you need to be prepared do a few things:
- Compile necessary financial information – this includes mortgage statements, income details including pay stubs and tax returns, monthly debt payments (ex. student/car loans)
- Be ready to explain your current situation in detail – you will have to explain why you are unable to make your mortgage payments and whether it will be a short- or long-term issue. Your mortgage servicer will need a good understanding of your situation to be able to provide the best solution for you.
- Contact your mortgage servicer – tell them you are interested in mortgage forbearance and want to see whether you qualify or not.
Benefits of Forbearance
- Extended time to regain financial stability
- Much less of an effect on your credit score than a foreclosure
- You get to keep your home during forbearance, avoiding foreclosure
The benefits are there for those who need them for a short-lived period of time.
Key Takeaways
- Mortgage forbearance should only be used by those who really need it
- Forbearance is not free; those payments still have to be made eventually
- Mortgage forbearance is a better option than ending up in foreclosure
- If you want to request forbearance, be sure you are prepared to share your situation and financial information