304 North Cardinal St.
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304 North Cardinal St.
Dorchester Center, MA 02124
Mortgage forbearance allows homeowners facing financial hardship to put their payments on pause for a set period of time. Here’s what you should know about mortgage forbearance, in case you need to weather a future financial crisis.
Mortgage forbearance is temporary relief offered by lenders which allows you to pause your monthly mortgage payments, or make lower payments, for a period of time.
When you’re approved for a mortgage forbearance, you and the lender agree that you will stop making payments for a specified amount of time and arrange to pay later.
“Forbearance doesn’t mean your payments are waived forever. It’s a temporary pause on payments, usually due to a financial hardship,” says Leslie Tayne, founder and head attorney focusing on consumer and business debt matters at Tayne Law Group.
Forbearance is an amendment to your loan agreement that changes how you repay your loan balance. The repayment can happen a few different ways.
You might be expected to make up the payments in a lump sum after the forbearance period expires. This will probably not be ideal for most borrowers.
“To make three or six mortgage payments in one chunk would be a lot of money,” says Hackett. In other words, make sure you’re not agreeing to this if it’s not feasible for you.
Typically, lenders also offer a more preferable option that tacks the payments you owe onto the back end of the loan.
Make sure you discuss the forbearance details with your lender to select the repayment option that works for your financial situation.
The length of your mortgage forbearance may depend on the type of mortgage you have and the arrangement you make with your lender. A typical forbearance is 90 days.
But other arrangements can be made in times of crisis. During the COVID-19 pandemic, for example, the CARES Act, which was signed into law in March 2020, provided an initial forbearance period of 180 days and a 180-day extension as needed. Applications for CARES Act forbearance closed in September 2021.
CARES Act or not, if you are in forbearance, you may opt out at any time.
“If you opt in for six months, you can stop it at any point if your job and income is secure,” Hackett says. “Just reach out to your lender and figure out how to restart (payments).”
You can obtain a forbearance whether or not you have a government-backed loan, as long as it’s approved by the lender.
The mortgage forbearance process could be as simple as filling out a form on your lender’s website, while other mortgage providers may require a phone or in-person consultation.
The forbearance process involves a discussion, and it’s likely that a good amount of documentation will be needed before your request is granted. As the borrower, the main thing that you’ll need to show is a temporary inability to pay your mortgage due to a loss of job or other decrease in income.
The petition process shouldn’t discourage you from contacting your lender. “Most lenders would rather work with you on a solution that ensures they get their money rather than let you fail,” Tayne says.
Your lender’s website should provide clear instructions on how to request a mortgage forbearance, but if not, you can call your lender and speak to a representative.
As your forbearance period winds down, you should be communicating with your loan servicer to determine the best course of action to exit the forbearance, says Hackett. “They will be looking at either a reinstatement, repayment plan, deferral or modification. The choice depends on the financial position of the borrower after forbearance,” he says.
When you receive a forbearance, your credit is not impacted.
“Lenders should continue reporting your loan as paid/in good standing during this period,” says Tayne.
But you can’t simply stop making mortgage payments without putting in the forbearance paperwork. If you miss payments without an agreement, your account will be reported as delinquent and your credit score will take a hit.
As a precaution, Hackett recommends keeping tabs on your credit report, especially during a financial crisis. If you opted for a forbearance, check your credit score and your free credit report each month to make sure you’re not penalized for a late mortgage payment.
“You don’t want to be marked late six months and realize it a year from now,” Hackett says.
You can dispute errors on your reports, but you will need to file disputes with the credit bureaus that issued the reports.
A mortgage forbearance can be a good option if you’re in a tough spot financially and need temporary relief. Just be aware that you will likely have to show proof that you’ve lost income or will be losing income.
If you didn’t suffer a job loss or cut in income, then you should continue making your payments.
You could also consider alternatives to mortgage forbearance, such as:
For most homeowners, a mortgage forbearance is the most prudent option compared with the alternatives. But think carefully before you sign an agreement with your lender.
As with any financial decision, it’s important to look at the big picture. If making your mortgage payments is going to be a longer-term problem, you could ask about other options.
“A loan modification alters the terms of your contract and is a more involved process. This option is generally reserved for when you have a major, long-term financial issue impacting your ability to pay,” says Tayne.
If you’re not sure how to proceed, you can always call your lender or speak with a financial advisor about your situation. One big caveat is that modifying or refinancing your loan is more complex than a forbearance and may require stable income and credit.