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Mortgage relief: What to know about mortgage forbearance

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Going into mortgage forbearance might seem daunting for homeowners facing unexpected hardship, but it’s really meant to be a lifeline in those exact situations. Understanding the basic facts about this type of mortgage relief might help alleviate some of the worry. Here, we’ll cover essential forbearance questions.

What is mortgage forbearance?

Mortgage forbearance allows borrowers to pause or lower their mortgage payments while dealing with a short-term crisis, such as a job loss, illness or other financial setback. This can help struggling borrowers avoid becoming delinquent with payments, as well as avoid foreclosure.

Whatever your reason for needing forbearance, it’s extremely important to talk to your lender or servicer before you stop making payments. Find out from your lender or servicer which type of loan you have and what the forbearance terms are. Stopping payments before you’ve officially been granted forbearance could make you delinquent on your mortgage and have a serious negative impact on your credit history.

How COVID-19 affected mortgage forbearance

COVID-19 and its economic impact led to expanded mortgage forbearance options for many borrowers. The CARES Act, the federal government’s initial pandemic relief plan, contained help for homeowners with government-backed mortgages, including home loans owned by Fannie Mae and Freddie Mac as well as VA, USDA and FHA mortgages. These protections have since expired.

Mortgage forbearance vs. loan modification

Mortgage forbearance is a temporary solution for those experiencing financial hardship. A loan modification, in contrast, changes the original mortgage terms permanently. A modification does not mean you can stop making payments; rather, it helps lower your payments to make them more manageable, either with a lower principal balance, a lower interest rate, an extension of the repayment term or some combination. You might have to provide documentation proving hardship to be approved for a modification.

Post-mortgage forbearance options

If you’re nearing the end of your mortgage forbearance period, you have options:

  1. If you can afford it, you could repay the missed payments in a lump sum. This will bring your mortgage back to current status.
  2. You could enter into a repayment plan, which adds an agreed-upon amount to your regular monthly payments so you repay the forbearance amount over a longer time period.
  3. If you’re still dealing with pandemic hardship, you could ask for a forbearance extension, provided you qualify.
  4. You could seek a loan modification, which changes the terms of your mortgage so you can better afford the payments.
  5. If you can no longer afford to stay in the home and are willing to move, you could sell it to pay off the mortgage. If the proceeds aren’t enough, you might be able to complete a short sale in coordination with your lender, which can help you avoid some of the more negative impacts of a foreclosure.

Pros and cons of mortgage forbearance

Pros

  • Defers or lowers monthly payments temporarily
  • Can help prevent foreclosure, or pause proceedings
  • Can still sell the home or refinance
  • Potential for flexible repayment options

Cons

  • Must repay missed payments, either in lump sum or with repayment plan
  • Payments might increase after forbearance period ends
  • Might not be an option for rental properties or second homes, depending on loan type

Mortgage forbearance FAQ

Bottom line

A mortgage forbearance is not automatic, so you can’t just stop making payments, otherwise your credit score will suffer, and you can end up in default or losing your home. Whether you’re seeking forbearance for the first time, looking for an extension or close to the end of your deferred payment period, stay in communication with your mortgage lender or servicer to discuss your options.

Written by
Ruben Caginalp
Associate writer
Ruben Çağınalp is an associate writer for Bankrate, focusing on mortgage topics.
Edited by
Mortgage editor
Reviewed by
Senior wealth manager, LourdMurray
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Part of  Guide to Mortgage Relief