What a forbearance agreement means for you

If someone is struggling to make their mortgage payment, forbearance is one option for getting relief. Forbearance allows people facing financial hardship to temporarily pause or reduce their mortgage payments. Once forbearance ends, the borrower will still owe the full amount of the loan and must pay back the difference, which can result in payments increasing.

We’ll break down how forbearance works and help you understand the options you have if you’re facing financial hardship and struggling to make mortgage payments.

What is a mortgage forbearance agreement?

A mortgage forbearance agreement is an agreement between a borrower and lender to pause or reduce payments while the borrower deals with a difficult financial situation. Forbearance is offered for multiple types of loans, including mortgages, student loans, and other loans.

If the lender offers forbearance, it will set the terms, such as the duration, the amount of the reduction in payment, and how future payments are adjusted after the forbearance period.

If the borrower follows the agreement, foreclosure is paused during the forbearance period.

How does mortgage forbearance work?

Mortgage forbearance works by temporarily pausing or reducing loan payments and waiving fees for late mortgage payments during the agreed-upon period. It is a short-term solution for someone who is facing financial issues and struggling to make loan payments, rather than a long-term option for making a mortgage more affordable.

Mortgage forbearance vs. deferment

If you’re looking for temporary relief from your mortgage payments, you may have heard of both forbearance and deferment. Both are options that let you pause payments, but how they work is slightly different.

With deferment, you must make up missed payments which are added on to the end of the loan’s term. It effectively extends the term of your loan. With forbearance, you make up the missed payments without changing the loan’s term, usually with increased payments once forbearance ends.

Mortgage forbearance eligibility

Mortgage forbearance may be available to people who are facing a temporary financial hardship. It is not for anyone who wants to pause payments or who is struggling to make their payments. You must have a good reason that your lender can verify to qualify.

For example, having difficulty with an adjustable-rate mortgage that has seen a rate increase would not be a good reason to qualify for forbearance. Losing your job might qualify you for forbearance.

Mortgage forbearance agreement terms

To initiate mortgage forbearance, you’ll enter into an agreement with the lender. That agreement will specify the details and terms of your forbearance, such as how long it will last, any fees or interest that will accrue, and how repayment will occur once the mortgage is reinstated.

Review the agreement clearly to make sure you understand all of your responsibilities.

• Forbearance period length: Your lender may have the option of extending your forbearance beyond the original period of time in this letter, in consultation with you.
• Repayment: If terms of repayment aren’t laid out in the letter, your servicer should tell you when they will contact you prior to the expiration of your mortgage forbearance.
• Credit impact: Many forbearances are reported to credit bureaus. These can have a negative impact on your credit score and ability to qualify for future loan options.
• Late fees: If the borrower is responsible for any late fees, they will be laid out in the letter.
• Interest: The letter will also lay out how interest is handled on any past-due payments.

What happens at the end of a forbearance agreement?

Once your forbearance period ends, your mortgage is reinstated and payments begin again. Depending on the type of loan you have, you’ll have to get current on the loan somehow. The options available will depend on the type of loan you have. For example, conventional loans insured by Fannie Mae and Freddie Mac will have different rules than other loans, like FHA loans or jumbo loans.

Some ways to get current on your loan include:

• Repayment plan: Should you qualify for this option, some amount will be added to your regular monthly payment for a number of months until your past-due payments are paid off.
• Deferral or partial claim: In certain situations, you may qualify to have a number of payments set aside to be paid off when you pay off your mortgage. In this case, you’re not charged any extra interest beyond what would’ve been due when the regular payment was made.
• Loan modification: Your existing loan terms are changed to incorporate your past-due mortgage payments.
• Lump sum: The easiest way to get current is to make one payment that contains all of your past-due payments. This isn’t feasible for everyone, but it can be the best option if you’re able to make it work.

Before your forbearance agreement ends, you should get in touch with your loan servicer to create a plan for what comes next. They can work with you to offer available options to repay what you owe.

If you need help discussing a plan with your servicer you can get in touch with a HUD-approved housing counseling agency that’s local to you. These counselors are available to develop a specific plan based on your personal circumstances at no cost to you. They will work with your lender on this plan of action.

Should you need an attorney to help work out the details with your lender, there may be legal aid available or free legal services in your area.

FAQ

Before you request forbearance, make sure you understand the process and how it works.

How do you request a mortgage forbearance agreement?

Each lender has a different process for requesting forbearance. It’s best to contact your lender directly to ask if you’re considering the option. Clients with loans serviced by Rocket Mortgage^® who are struggling with their mortgage payments may fill out our Application for Success. No separate hardship letter is necessary.

How long does a mortgage forbearance agreement last?

How long mortgage forbearance lasts can vary based on your situation, the type of loan you have, and your lender’s policies. Be sure to ask your lender to confirm how long you can use forbearance.

Does a forbearance agreement always hurt your credit score?

Some lenders may treat forbearance as missing or making late payments, which could cause it to damage your credit. However, there are exceptions. For example, forbearances following natural disasters declared by the Federal Emergency Management Agency or the president won’t affect your credit.

The bottom line: You have mortgage relief options

If you’re facing a temporary financial hardship and are struggling to make your mortgage payment, forbearance may be a way to get temporary relief. A mortgage forbearance agreement can pause or reduce your monthly payments, giving you a chance to get back on your feet. Once forbearance ends, you’ll have to make up for the missed or reduced payments.

If you’re looking for help with your mortgage payments, Rocket Mortgage has more resources on ways to get help.