What is forbearance?

In some cases, lenders will agree to be flexible to your payment schedule so that you can afford to pay back your debts and keep the ownership of a property. This is because the foreclosure isn’t good not just for you, but also for your lender, as the losses generated by the property will most likely fall on them. This situation is called a special forbearance or mortgage modification.

This means that the forbearance is a temporary postponement of mortgage payments. It is a type of repayment relief that the lender or creditor gives the homeowner instead of forcing a foreclosure.

Forbearance is a useful process for both the homeowner, who now has the time to collect the money they own, and the lender, which oftentimes loses money on foreclosures as the process is rather expensive, and they are already at the loss because of the homeowner’s debt. Keep in mind that a lot of loan services, which collect payments but aren’t the owners of the loan, can refuse to work with homeowners who are on forbearance relief because they don’t come with much financial risk. The terms of forbearance are negotiated between the homeowner and the lender, but the homeowner has to prove that he/she will be able to repay the debt in a given time, and also to provide evidence of temporary cause for payments delays, such as divorce, major illness or loss of their job. The lender can approve a full reduction of the homeowner’s payment or a partial one, a decision that is also negotiable and depends on your ability to repay debt.

Sometimes, the lender will grant the homeowner a full moratorium on making mortgage payments during this period. In other instances, the homeowner has to make interest payments but not pay down the original borrowed sum of money. Another option is the homeowner will repay only the part of the interest, while the unpaid portion will result in negative amortization. The lender also may decide to temporarily reduce the borrower’s interest rate.

As it was noted already, not everyone is suitable for forbearance. For example, if you have been working at the same job for a decade and never before missed a single mortgage payment, you are a better candidate for forbearance than someone who had trouble holding up a job or someone who is known for not making payments on time. This is why it’s important to always stay on track with your payments and to be responsible with your finances.