What Is A Forbearance Agreement?

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Key takeaways

A mortgage forbearance agreement allows you to temporarily stop making monthly mortgage payments, or make smaller payments, amid financial hardship.
As part of a standard mortgage forbearance agreement, the lender agrees not to initiate foreclosure in response to missed payments.
After the forbearance period ends, you’ll still need to make up the payments you missed, either in a lump sum, installments or a deferred payment.

What is a forbearance agreement?

A mortgage forbearance agreement is an arrangement between you and your lender to temporarily pause or lower your mortgage payments, usually in response to a short-term financial hardship. You’ll still owe the amount you missed, usually when the forbearance period ends or at the end of your loan term.

The initial forbearance period typically lasts between three to six months. Depending on your lender and type of loan, you might be able to extend the forbearance if the hardship lasts longer than that.

A forbearance agreement can be a lifeline for temporary challenges like a job loss. It will not, however, keep you out of foreclosure if you can’t make up the payments after the forbearance period ends.

Mortgage forbearance agreement vs. deferment

A mortgage deferment or deferral is one type of repayment method after forbearance. In this case, the lender adds the owed amount to the end of your loan term, so you won’t have to make larger payments when your regular payments resume.

What does a standard mortgage forbearance agreement include?

Here are some of the key features of a standard mortgage forbearance agreement:

The length of the forbearance period
How the missed payments will be repaid and any late fees you might be responsible for
The amount of payment required during the forbearance period, if any
Whether the lender will report the forbearance to the credit agencies
Whether interest will continue to accrue on the missed payments

Keep in mind, forbearance agreements differ between mortgage lenders since they’re based on factors such as the investor requirements of your loan.

What happens after the forbearance agreement ends?

Depending on your lender or servicer, you’ll have different forbearance repayment options. You might be able to pay it all in one lump sum, tack on the payments to your existing monthly payment or defer what you owe to the end of the loan term. You might also be able to refinance your loan. If your hardship becomes permanent, you might be able to do a loan modification, which permanently changes the terms of your existing mortgage, such as the interest rate or loan term, to make the payments more affordab le.

FAQ

Continue to pay your mortgage until you receive a written notice that the forbearance agreement is in effect. If you don’t, your lender could report those missed payments to the credit bureaus, which could lower your credit score. Make sure to also check your credit report regularly to ensure your lender doesn’t mistakenly report catch-up payments as late ones.
To request a mortgage forbearance agreement, contact your lender or whoever services your mortgage payments. You will likely need to provide documentation (like a lay-off notice) proving that you’re experiencing financial difficulties.