What is a Mortgage Forbearance?

What is a Mortgage Forbearance?

A Forbearance period offered by a lender is a temporary allowance to pay your mortgage at a lower payment or a pause on paying the loan altogether. Typical timeframe offered for this option is 3 months, if a person requires more assistance, they will need to contact the lender and submit a hardship request requesting more time.

Forbearance is a very helpful option for people who suffered short term hardships. It lets them have some breathing room to get their financial affairs in order and get back on track. However, for individuals whose livelihoods have been affected by loss of employment or other long-term troubles, the consequences of forbearance can lead to a rabbit hole of financial worries. Most banks do not allow you to make partial payments to bring your loan current. To reinstate the mortgage, a person must repay 3 months’ worth of mortgage payments in one lump sum. That is a difficult task for anyone but failure to do so will result in fees, interest penalties, and most often default. After three to six months of missed mortgage payments, a lender will issue a Notice of Default with the County Register's Office.

The Notice of Default provides information to the homeowner for curing the default with their lender. The pre-foreclosure phase can last anywhere from 30 to 120 days after receiving the Notice of Default. Therefore, our advice is to be proactive! Do not let things spiral out of control. If you feel you are in a position where you are not able to repay the loan, or can no longer afford to keep the home, it is best to speak to one of our foreclosure consultants about your options and the possibility of completing a short sale in the future.

Forbearance vs. Modification

If you have not been able to bring the account current after forbearance but wish to try and retain your home, you can request a loan modification review. A mortgage modification is a process where the terms of your mortgage are modified outside the original terms of the contract agreed to by the lender and borrower. Typically to qualify you must prove to the lender that you have income to support the new mortgage payments. Please note, most often those payments will go up because the total arrears are added back to the original principal balance and the loan is re-amortized (re-calculated) over a 20-, 30-, or 40-year mortgage term. In both options, the borrower’s credit will be adversely affected. However, if you can permanently modify the loan and keep it current by making your payments on time for the remainder of your modification terms, your credit can recover after 12-24 months.

Summary

Forbearance – Temporary relief, very limited time. To bring the loan current,  the total amount due must be paid in full at the end of the forbearance agreement.

Loan Modification – Temporary relief, however if successfully completed can become permanent. The original debt is still tied to you. Your payments may increase.