Pros and Cons of Mortgage Forbearance

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How Does Mortgage Forbearance Work?

Mortgage forbearance is a temporary suspension or reduction of monthly mortgage payments granted by a lender to help a borrower through financial hardship. Lenders are not required to grant forbearance, but there are steps you can take to improve your chances of approval.

How Does Mortgage Forbearance Work?

To receive mortgage forbearance, you must request it from your lender. Forbearance is typically granted for a short period (usually no more than 12 months), with the expectation that regular payments will resume afterward. The missed payments during the forbearance period must be repaid with interest.

When forbearance ends, repayment options include:

• Lump-sum payment covering missed payments
• Installments added to your monthly mortgage payment for up to 12 months
• Deferral of payments added to the end of your loan term, potentially increasing interest charges
• Mortgage modification, which permanently alters your loan terms

Forbearance is generally offered to borrowers with good credit who can demonstrate that their financial difficulties are temporary.

Pros and Cons of Mortgage Forbearance

Pros

• Avoid selling your house: Forbearance can help you manage short-term financial issues without selling your home or falling behind on payments.
• Reduce stress: Temporary relief from mortgage payments can alleviate stress during financial crises.
• Preserve your credit score: If your lender agrees not to report your loan status as “not paid as agreed,” your credit score won’t be negatively impacted.

Cons

• Hard to get: Borrowers with less-than-ideal credit may find it difficult to obtain forbearance.
• Increased payments later: Transitioning from reduced or suspended payments to higher repayment amounts can strain your budget.
• Foreclosure: Failure to meet the terms of the forbearance agreement can result in foreclosure.

Is Mortgage Forbearance Bad for Your Credit?

It depends. While forbearance is granted with the lender’s permission, it technically deviates from your mortgage contract. Lenders can report your loan as “not paid as agreed,” negatively impacting your credit score. However, some lenders choose not to report forbearance. It’s important to understand your lender’s policy and request that they do not report a change in payment status to the credit bureaus.

Is Mortgage Forbearance a Good Idea?

If you are facing temporary financial challenges and are confident you can resume regular payments within 12 to 18 months, mortgage forbearance can be a helpful option. It can ease financial pressure without risking your home. However, if you cannot commit to resuming payments within this timeframe, forbearance may not be suitable. In such cases, consider consulting a government-approved housing counselor for alternative options.

How to Qualify for Mortgage Forbearance

To determine if you qualify for mortgage forbearance, contact your lender or loan servicer. Each lender has its own criteria, which may include your credit history, credit scores, and evidence that your hardship is temporary and that you will be able to make repayments after the forbearance period ends.

FAQs About Mortgage Forbearance

• How Long Does Forbearance Last?
• What Are Alternatives to Mortgage Forbearance?
• Is Extra Interest Charged During Forbearance?

The Bottom Line

If you are experiencing a temporary financial hardship and are confident you can resume regular mortgage payments within a year, mortgage forbearance could be a viable option. Monitoring your credit is also important to ensure your lender adheres to any agreements regarding payment status reporting.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We are here to help you navigate your financial challenges with expert guidance and support.

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