What Is Mortgage Forbearance and How Does It Work?

If a temporary loss of income, a medical emergency, or even a natural disaster hits you out of the blue, it can be tough to keep up with mortgage payments, not to mention your other expenses. If you anticipate having trouble paying your mortgage, consider requesting mortgage forbearance from your loan servicer until you get back on track.

Mortgage forbearance lets you temporarily pause or reduce your monthly payments, but it doesn’t erase or reduce your loan balance. Without a long-term plan, entering a forbearance plan is just kicking the can down the road. Before turning to forbearance, find out how it works, learn about repayment options, and consider alternatives that may be less risky.

What is mortgage forbearance?

Mortgage forbearance is a payment relief option for borrowers experiencing temporary financial hardship. Your lender or loan servicer sets up a forbearance plan that allows you to pause or reduce your monthly mortgage payments in the short term and repay the difference at a later date. 

The forbearance options available depend on your lender, the loan program, and your financial situation. Your mortgage servicer may also have specific eligibility requirements. 

How does mortgage forbearance work?

Forbearance is available to borrowers experiencing financial hardship. For example, if you lost your job, had a medical emergency, or were affected by a natural disaster, you might be eligible for forbearance. 

Forbearance plans can vary from one mortgage servicer to the next, but they generally work in one of two ways:

• You stop making payments for a defined number of months
• You make a smaller payment for a defined number of months

The initial forbearance period is typically six months with the potential to extend. It’s important to understand how mortgage interest is calculated during forbearance and what repayment options you’ll have when you exit forbearance. 

"The biggest mistake I see is borrowers assuming the skipped payments during a forbearance quietly disappear—they don't, and that's not what forbearance is," says Frederick Blum, broker and owner at Blum Realty Group based in San Diego. "I advise borrowers to know which option they're signing up for, to keep paying anything the agreement still requires, and to budget for the skipped payments from day one of the forbearance."

How do you apply for mortgage forbearance?

Your loan servicer will guide you through the process of requesting forbearance. It’s most important that you contact your lender or servicer immediately. 

"One thing I regularly tell clients is not to wait until they have already missed several mortgage payments before contacting the lender," says Ashley Morgan, attorney and owner at Ashley F. Morgan Law, PC, based in Virginia. "It is much easier to negotiate solutions while [you are] only beginning to experience financial stress than after foreclosure proceedings have started."

In fact, some forbearance programs require that you request assistance within a specific period following a qualifying event. If you wait for your financial situation to spin out of control, you could miss your chance to apply. 

You will likely need to provide some information and documents in your application for assistance. Although requirements may vary by the lender and the type of loan, it can include:

• The type of hardship and the date it began
• Your income and assets
• Your estimated monthly expenses and debts
• Tax returns
• Pay stubs, bank statements, and brokerage statements
• Profit and loss statement if self-employed
• Non-borrower credit authorization, if another household member contributes to your income
• Benefits letters
• Unemployment affidavit, if applicable

How do you repay a mortgage after forbearance?

After forbearance, you may have multiple mortgage repayment options. 

"If someone is considering a forbearance, my first recommendation is to ask the lender how the missed payments will be handled before agreeing to the plan," says Morgan. "I also recommend getting everything in writing whenever possible. While a lender may not approve a loan modification before the forbearance begins, homeowners should understand the process, eligibility requirements, and potential outcomes. Having clear written documentation avoids misunderstandings later."

Your lender or loan servicer may offer the following options, depending on the type of loan and the lender's policies:

• Repayment plan: A repayment plan typically allows you to catch up on the amount you owe over time. In most cases, a portion of your skipped mortgage payments is added to each monthly mortgage payment for a period of time after forbearance ends. 
• Reinstatement: With this option, you pay the full balance you owe after forbearance in one lump sum. With most government-backed loan programs, servicers can’t require a lump sum payment. If you may struggle to repay everything at once, ask about other payment options. 
• Payment deferral: A deferral or partial claim tacks your skipped payments onto the end of your loan’s repayment term or places the debt in a subordinate lien — essentially a second mortgage. Repayment of the subordinate lien is due upon selling, refinancing, or terminating your mortgage. Depending on the type of loan, the subordinate lien may or may not accrue interest.
• Loan modification: In certain situations, your loan servicer may give you the option to restructure your mortgage when you exit forbearance. This long-term strategy often involves lengthening the repayment term and adding the amount you owe from the forbearance period to your total balance, which can result in a permanently lower monthly payment. This option may be best if you’re facing ongoing financial hardship. 

Is mortgage forbearance a good idea?

Mortgage forbearance can work well for people who need short-term relief and have a long-term plan to get back on track. 

“Forbearance buys time and is best used for those experiencing a temporary hardship with a defined end date. An example would be a worker who has a written contract to begin work again on a certain date,” says Blum.

Mortgage forbearance alternatives

If you’re facing a permanent reduction or loss of income, you may want to consider alternatives, such as:

• Loan modification: Your lender or servicer may agree to permanently restructure the terms of your mortgage. For example, they might agree to extend the repayment term of your mortgage or lower your interest rate, which typically reduces the size of your monthly payment. Make sure you understand the long-term costs of the change. 
• Refinancing: Refinancing involves taking out a new mortgage to pay off your existing mortgage. This strategy can be helpful if the new mortgage has a lower interest rate and reduces your monthly payment. But it’s not a good idea if you plan to move soon — refinancing requires closing costs, and it takes time to recover the upfront expense. Refinancing will only be an option if you have sufficient resources to make payments. 
• Selling: If you can no longer afford the cost of homeownership, selling may be your best option, especially if you can walk away with a profit. “A planned sale today will almost always net a seller more than a forced sale later,” says Blum. 
• Bankruptcy: Bankruptcy could be a last-ditch option if you’re already deep in debt. “A Chapter 13 bankruptcy can allow someone to catch up on missed mortgage payments over 3 to 5 years while stopping foreclosure proceedings,” says Morgan. In a Chapter 7 bankruptcy, you may be able to keep your home, provided you’re current on mortgage payments and the home’s equity is below your state’s homestead exemption. With either type of bankruptcy, other debts are discharged or reduced, allowing you to better afford mortgage payments.

Some government-backed loan programs also offer additional options for avoiding foreclosure aside from forbearance. FHA loans, for example, come with a wide range of loss mitigation options that may be a better fit depending on your situation, including options for borrowers who are already behind on their mortgage payments and need longer-term payment relief. 

Does mortgage forbearance hurt your credit?

One caveat to keep in mind when comparing options is the potential effect on your credit and your ability to borrow in the future. If you enter into a forbearance agreement, the mortgage servicer can inform the credit-reporting agencies. However, if you were current on payments before the agreement, the servicer is generally required to report your account as current as long as you follow the terms of the forbearance agreement. How lenders view a forbearance on your credit report depends on your payment history after you exit forbearance.

"Lenders see it, and you'll typically need to have exited and shown a stretch of on-time payments before you will qualify again. It protects your score better than it protects your immediate ability to borrow again," says Blum. So, if you enter into forbearance but ultimately need to sell because your financial hardship is permanent, you might have trouble qualifying for a new home loan. Long-term planning is crucial.