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Understanding Mortgage Forbearance: A Comprehensive Guide

Mortgage forbearance is a temporary suspension or reduction of monthly mortgage payments granted by a lender to help a borrower through temporary financial hardship. This article will explore how mortgage forbearance works, its pros and cons, its impact on your credit, and how to qualify for it. If you need expert mortgage services, contact O1ne Mortgage at 213-732-3074.

How Does Mortgage Forbearance Work?

To receive mortgage forbearance, you must request it from your lender. Lenders offer forbearance at their discretion, expecting that regular payments will resume within a short time, typically no more than 12 months. Payments put on hold during the forbearance period will need to be repaid with interest.

When forbearance ends, lenders typically expect repayment in one of the following ways:

• Lump-sum payment: Covers the portion of your regular payments you didn’t make during the forbearance period.
• Repayment in installments: Added to your standard monthly mortgage payment for up to 12 months.
• Deferral of payments: Added to the end of your payment term, potentially resulting in significant additional interest charges.
• Mortgage modification: Permanently alters your interest rate and/or the length of your payment term to make your monthly payments more affordable.

Forbearance is typically limited to borrowers with good credit who can show that their financial difficulties will be short-lived. Examples of short-term hardships include property damage from a natural disaster, temporary income loss due to illness, or a short-term increase in household expenses.

Pros and Cons of Mortgage Forbearance

Pros

• Avoid selling your house: Forbearance can help you get through a short-term financial crisis without having to sell your home.
• Reduce stress: Reduced or suspended mortgage payments can alleviate stress during a temporary financial crisis.
• Preserve your credit score: If your lender agrees not to report your loan status as “not paid as agreed,” there will be no negative impact on your credit scores.

Cons

• Hard to get: If you have less-than-ideal credit, your lender could deny your request for forbearance.
• Increased payments later: Transitioning from reduced or suspended payments to repayment can be challenging for your budget.
• Foreclosure: If you cannot make scheduled payments during the forbearance period or repay suspended payments, the lender can foreclose on your home.

Is Mortgage Forbearance Bad for Your Credit?

That depends. Even though forbearance is given with the lender’s permission, it technically deviates from the terms of your mortgage contract. The lender can report your loan as “not paid as agreed” to the national credit bureaus, resulting in a negative entry on your credit report.

Lenders do not have to report forbearance to the credit bureaus, and some do not. Before entering into a forbearance agreement, it’s wise to know your lender’s policy on this and ask them not to report a change in payment status to the credit bureaus.

Is Mortgage Forbearance a Good Idea?

If you are experiencing financial challenges and are confident they will be temporary, mortgage forbearance can be a great way to ease the pressure on your budget without putting your home at risk. If your loan servicer agrees not to report a change in payment status to the credit bureaus, it can even allow you to keep your credit intact.

If you cannot realistically commit to resuming regular mortgage payments within 12 to 18 months, mortgage forbearance may not be a good option. In such cases, consider consulting a government-approved housing counselor to help sort out your best options.

How to Qualify for Mortgage Forbearance

The only way to know whether you’ll qualify for mortgage forbearance is to ask your lender or loan servicer. Each lender has its own standards for deciding to whom it will extend mortgage forbearance. Factors could include your credit history, credit scores, and evidence that your hardship will be temporary and that you’ll have the means to make repayment after the forbearance period ends.

FAQs About Mortgage Forbearance

How Long Does Forbearance Last?

Forbearance typically lasts no more than 12 months, but the exact duration can vary depending on your lender and your specific situation.

What Are Alternatives to Mortgage Forbearance?

Alternatives to mortgage forbearance include loan modification, refinancing, or seeking assistance from a housing counselor.

Is Extra Interest Charged During Forbearance?

Yes, interest continues to accrue on the unpaid portion of your mortgage during the forbearance period, which can result in additional interest charges.

The Bottom Line

If you are experiencing a temporary financial hardship and are confident you’ll be able to resume regular mortgage payments in a year or less, mortgage forbearance could be a great option for getting you through the crisis. As you navigate your hardship, it’s a good idea to keep an eye on your credit. If your lender agreed not to report payments as late or missed, checking your credit report can ensure they keep their promise.

For expert mortgage services and personalized advice, contact O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your mortgage needs and find the best solutions for your financial situation.

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