Mortgage forbearance: What it is and how it works

When unexpected financial challenges arise, keeping up with your monthly bills can become overwhelming. If you are experiencing a temporary financial hardship and have no other options available, forbearance may be an option.

A mortgage forbearance allows you to temporarily pause or reduce your mortgage payments while you work to get back on your feet.

Mortgage forbearance definition

Mortgage forbearance is a temporary plan approved by your lender, allowing you to pause or reduce your mortgage payments for a time to allow you to recover from financial difficulty.

It is important to view loan forbearance as a short-term solution rather than a permanent change. Your regular mortgage interest generally continues to accrue during forbearance unless your loan program explicitly states otherwise. Missed payments are not forgiven. Instead, you agree to pay the full amount plus interest when forbearance ends in a way your lender accepts.

How a forbearance agreement works on a mortgage

If your financial situation has changed and you’re worried you won’t be able to make your monthly payments, here are the steps to take to apply for forbearance.

1. Contact your lender or mortgage servicing company: As soon as you realize you might need help, reach out to the company that manages your loan.
2. Explain your hardship: Depending on your lender's requirements, you may need to provide documentation, such as medical bills or proof of lost income, to explain your situation.
3. Your lender provides terms: The lender will outline your available forbearance terms, including the agreement length, payment expectations, and any required paperwork.
4. Accept a forbearance agreement: Once approved, you will agree to the terms of the forbearance agreement, including acknowledging that you will pay back any amount not paid during the forbearance term. You will receive a document outlining the specific terms of your temporary relief

During your forbearance, your payments are paused or reduced, but your loan remains active. As you near the end of your forbearance period, your lender will work with you to review your repayment options. Keep in mind that exact terms will vary by loan type and the specific rules set by your mortgage investor.

Mortgage forbearance eligibility

Not everyone automatically qualifies for forbearance. Lenders want you to keep your home, but they also need to ensure the relief plan makes sense for your circumstances. When determining your eligibility for mortgage assistance, lenders commonly consider the following factors:

• A demonstrated financial hardship
• Your expected ability to resume regular payments after the forbearance period ends
• The current standing of your loan
• Specific lender or investor program requirements

Some programs offer streamlined forbearance options with reduced documentation requirements, making it easier to get help quickly. Because eligibility guidelines differ significantly by loan program, your servicer is the best resource for understanding exactly what you need to qualify.

Mortgage forbearance length

A forbearance plan is temporary and typically lasts anywhere from one to several months, depending on your mortgage servicer’s rules. If you reach the end of your forbearance agreement — usually 3 months – and are still experiencing financial distress, extensions may be available.

Depending on the type of forbearance, the investor of the loan and previous loss mitigation history in extreme circumstances forbearances can be extended up to 12 months. - although this is rare and difficult to pay back.

Post-forbearance repayment options

The payment options available to you will depend on your lender, your loan servicer, and your investor program's rules.

Be sure to review your forbearance agreement closely. Your agreement should outline the next steps to take once forbearance ends, including what options you may qualify for.

In many cases, if you cannot make a one-time lump sum payment you can be reviewed for a repayment plan where you spread the unpaid amount out over two or three monthly payments, or you can apply for loss mitigation programs to modify the terms of your mortgage to include the unpaid amount. The ultimate goal of these repayment options is to help you resume your regular payments without immediately creating a new financial strain.

The full amount is paid after forbearance ends

The preferred option is to repay your paused or reduced payments in a lump sum when the forbearance ends.

The full amount is paid during a repayment plan period

A common post-forbearance route is a repayment plan which spreads your missed payments over two or three monthly payments after the forbearance ends. Because you are catching up on what you owe over time, you'll have a temporary increase in your regular monthly payments until the total past-due amount is repaid.

The full amount is paid by modifying your mortgage

Also known as a loan modification, this option allows your unpaid balance to be added to the principal balance of the loan and for your mortgage terms to be adjusted allowing you to bring your loan current and restart payments. A modification may adjust the rate, term and payment amount due. You may also have an escrow account added to your loan, based on investor requirements.

If you’re unable to resume payments

If you reach the end of your forbearance and find that you are still unable to resume your regular mortgage payments, you still have paths forward. Your options might include:

• A loan modification to permanently change your loan terms and bring your loan current
• Selling the property to pay off the remaining mortgage balance
• Exploring other loss mitigation options, like a short sale

If you know that repayment will not be possible, it is important to be transparent and work with your lender as early as possible to explore these alternatives.

Pros and cons of mortgage forbearance

Mortgage forbearance can offer critical temporary payment relief during a hardship, but it can also come with trade-offs. Understanding both the benefits and the drawbacks can help you decide whether forbearance is the right choice for your situation.

Keep in mind that the impact of forbearance can vary heavily based on your loan type, your investor's guidelines, and the overall length of the forbearance period.

Mortgage forbearance pros

Some of the benefits of mortgage forbearance include:

• Temporarily reduces or pauses your mortgage payments during a hardship.
• Many servicers will not charge you late fees while you're in a forbearance.
• May offer multiple flexible repayment options depending on your loan program.

Mortgage forbearance cons

Mortgage forbearance can also come with drawbacks, such as:

• Your regular interest typically continues to accrue during the forbearance period.
• Missed payments are not forgiven and must still be repaid later through one of your lender’s agreed-upon options.
• The total cost of your loan may increase over time, depending on the repayment structure you choose.
• Being in forbearance may temporarily limit other financial moves, such as refinancing, until certain payment conditions are met.
• While payments are reduced or paused, they are still considered due or past due, so entering a forbearance can put your loan into a delinquent status.
• When you exit a forbearance, if you do not bring your loan current at the end of the forbearance, foreclosure proceedings can start immediately.

How to ask your lender for forbearance on your mortgage

Taking the initiative to ask for help is a powerful step toward protecting your home. Here are the steps to follow when asking your lender for a forbearance:

• Contact your lender or loan servicer as soon as your hardship begins  – ideally before you miss a payment.
• Explain your situation clearly and ask what documentation is needed to support your claim.
• Review the agreement thoroughly before accepting to ensure you fully understand the payment expectations after the pause ends.
• Stay in regular communication with your servicer throughout the forbearance period, especially if your financial situation changes.

FAQ

Here are answers to some frequently asked questions about mortgage forbearance.

Will my payment period change after the forbearance?

Your payment may change depending on the repayment option you qualify for or are approved for. Some repayment plans will extend your overall loan term, while others adjust your monthly payments for a short period so you can catch up on the missed amount.

Does mortgage forbearance affect my interest rate?

No, forbearance does not change your underlying fixed interest rate. However, your standard interest usually continues to accrue on your loan balance during the paused period. If you cannot pay back the forbearance amount and you need to modify your loan, your interest rate can change.

Does mortgage forbearance affect my credit score?

The impact on your credit score depends heavily on your servicer’s reporting practices. Fortunately, many servicers avoid reporting paused payments as delinquent to the credit bureaus as long as you are actively enrolled in an approved forbearance plan and were current beforehand. Many servicers report forbearance payments as in a forbearance, which can have a negative impact.

Can I refinance if I’m in forbearance?

Some refinance options require the loan to be brought completely current first, or may require a certain number of consecutive, on-time payments after your forbearance period ends. Your eligibility will ultimately depend on the new loan program, the lender’s specific guidelines, and how the forbearance was reported to credit bureaus during your hardship period.

The bottom line: Mortgage forbearance can offer temporary relief

When you are facing a difficult financial season, mortgage forbearance can offer temporary relief by allowing you to pause or reduce your monthly payments. While it does not erase what is owed, it provides the breathing room necessary to get back on your feet. Repayment is always required once the forbearance period ends, but there are multiple options to help you manage the balance.

If you’re a Rocket Mortgage client experiencing financial distress, we’re here to help. Sign in to your Rocket Account and fill out our Application For Success. A representative will contact you to discuss the mortgage relief options we offer.