What is Mortgage Forbearance? Should You Pursue It?
Sometimes, temporary financial difficulties make it hard to pay your mortgage. Because these difficulties are temporary, you might want to avoid selling your home. However, you need a temporary reprieve so that you do not fall behind on your mortgage and enter default.
This is where mortgage forbearance comes in. With forbearance, you can temporarily reduce your mortgage payments, sometimes to zero. It might be just what you need to stay in your home.
Forbearance versus Modification
Many people have heard of a home loan modification, but how does it differ from forbearance? Here are key differences.
With modification, you permanently change some terms of the loan. This could include the repayment period, the interest rate, or (less commonly) the amount of principal. A common modification involves moving a 30-year mortgage to a 40-year one. The monthly payments are lowered, though the homeowner pays more over the life of the loan.
A forbearance is a temporary reduction in the amount you pay. Some lenders might even reduce the amount to $0 for a few months. The key is that forbearance is temporary. Ultimately, the borrower will need to make up the missed payments by paying more going forward.
Catching Up on Missed Payments
Every lender is different in how they will expect the borrower to “catch up” on the suspended payments.
Some borrowers will need to pay a lump sum at the end of the forbearance period. For example, if the lender granted a 6-month forbearance, all 6 months of mortgage payments come due at the end of the period.
Other borrowers can stretch out repayment over a year, several years, or the life of the loan. Some lenders will also allow borrowers to take out a loan to pay back the amount that they owe. A homeowner should work with his or her servicer to discuss options. Remember that interest will continue to accumulate during the forbearance period, which will increase the amount a homeowner ultimately pays.
Reasons to Seek Forbearance
The primary reason is that the homeowner is in danger of missing payments due to temporary factors. For example, a person’s home home might have been damaged, and the owners need to use existing funds to repair it. Or a homeowner might have suffered a temporary disability but expects a quick recovery and return to work. Any temporary strain on finances could justify asking for a forbearance.
If a person’s financial condition has changed permanently, then forbearance is probably not a good option. For example, if you were permanently disabled, then you are facing a permanent reduction in income. Forbearance only delays the inevitable, which is considering whether you can afford to stay in your home or whether you should sell and move.
Requesting a Mortgage Forbearance
Each servicer or lender has its own process for requesting. Remember to call as soon as you realize that you are facing temporary financial difficulties. Some lenders have deadlines that a borrower must meet, such as a set amount of time after a natural disaster.
Nowack & Olson, PLLC has deep experience with foreclosure defense. If you would like to discuss your options, please give our Plantation foreclosure defense lawyers a call at 888-813-4737.