What You Need to Know About Mortgage Forbearance

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 when a lender allows a borrower to temporarily stop making payments.

When you’re approved for a mortgage forbearance, you and the lender agree you will stop making payments for a specified amount of time and arrange to pay later.

“Borrowers should understand the lender is not waiving those payments but temporarily suspending the collection of those payments,” says Andrew Demers, partner in the banking and real estate group with the Weiss Serota Helfman Cole & Bierman law firm.

Forbearance is an amendment to your loan agreement that changes how you repay your loan balance. The repayment can happen in a couple of 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 Matthew Hackett, operations manager at New York loan underwriter Equity Now. 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 causes you the least financial stress.

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 there could be other arrangements made in times of crisis. During the coronavirus 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 CARES Act and the pandemic simplified the forbearance process because lenders could presume the reason borrowers needed relief was because of the virus. Today, lenders are moving back toward pre-pandemic procedures, where a longer discussion and more documentation may be needed before a forbearance 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 stream.

The petition process shouldn’t discourage you from contacting your lender, Demers says. “Lenders are aware that the financial impacts from the pandemic will last for many years to come. As a borrower facing financial difficulty, you should take the initiative with your lender to discuss options,” he 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. With inflation, rising interest rates and pandemic relief programs ending, there could be longer wait times as more people seek relief.

Your lender should be willing to work with you, Demers says, if your loan is in good standing and you can illustrate a financial hardship.

Then, when 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.”

When you receive a forbearance, your account will be reported to credit bureaus as current during that time.

“Once your payments are suspended, the lender is not able to issue negative reporting to the agencies,” Demers says.

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. Your mortgage is likely the biggest portion of your monthly expenses, and if you can pause the payment while you get through a financial rough patch, you might as well take advantage of that opportunity.

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, looking at the big picture is important. “If it’s going to be a longer-term problem, you could ask your lender if you can restructure the loan,” Demers says.

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.