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You’ve suffered financial hardship. Now what? If you can’t make your mortgage payments, you may worry about foreclosure.
Fortunately, your mortgage company may offer a few options if you contact them. One of those options is mortgage forbearance. What does it mean and how does it affect you?
We answer all of your questions below.
What is Mortgage Forbearance?
Mortgage forbearance is an agreement between you and your lender to stop making mortgage payments for the agreed-upon time.
At the end of the agreement, you owe the money as one balloon payment unless you make other arrangements. A balloon payment means all the payments you skipped plus any current payments are due at once. For example, if you skipped May, June, and July mortgage payments of $1,000 each, you’d owe $3,000 at the end of the forbearance agreement.
Many people misunderstand, thinking they can just pick up where they left off, making regular payments again, but that’s not always the case.
How Does Mortgage Forbearance Work?
If your lender agrees to mortgage forbearance, they’ll provide you with a forbearance agreement. The agreement should include:
- The terms or how long you don’t have to make payments
- How the lender will report your mortgage to the credit bureaus during the forbearance agreement
- How you will make up the missed payments
Knowing the terms is very important. Let’s say, for example, you enter a forbearance agreement on April 1st for 3 months. This means you don’t owe April, May, or June mortgage payments.
But, what does the agreement say about repayment? Do you have a balloon payment due on July 1st? If so, this means your April, May, June, and July payments are due. If you’re having financial difficulties, that may not be possible.
Discuss the options with your lender either when you enter the forbearance agreement or before the term ends. You don’t want unpleasant surprises leaving you financially stressed again after you just entered a forbearance agreement.
What are the Requirements?
Forbearance isn’t automatic – you have to apply for it with your lender. Most lenders require an application and proof of your financial difficulties. For example, you may need proof of your other monthly liabilities aside from your mortgage and proof of your income (or lack thereof if you lost your job). You may also need to write a letter or verbally explain your situation.
Lenders need to determine if this is a short-term or long-term issue. If it’s long-term they may have other options rather than forbearance, since it only helps you temporarily.
Is Mortgage Forbearance a Good Idea?
Not everyone benefits from mortgage forbearance. If making your payments after the forbearance ends will pose a financial difficulty, talk to your lender about other options. A loan modification, refinance, or short sale may offer better solutions depending on what you can afford and if you want to stay in the home.
Mortgage forbearance is an option for those suffering from temporary financial issues. Just make sure you know the ins and outs of the agreement, especially how you must take care of the balance at the end of it. Most lenders offer flexible options, but you have to ask them to find out what’s available to you.
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