If you’re concerned about your ability to make your next mortgage payment, working with your lender on a forbearance agreement may be an option. Doing so can help you avoid late penalties, going into default and risking foreclosure.

For the better part of the last two years, if you had a federally-backed mortgage, you were also be able to take advantage of forbearance protection under the CARES Act, but this is no longer available.

Instead, you may be able to negotiate an arrangement with your loan servicer. To do this, you’ll have to present documentation of your financial situation to provide proof of hardship — something the CARES Act did not require. Below, we’ll prepare you with everything you need to know about a mortgage forbearance agreement.

What is a mortgage forbearance agreement?

Mortgage forbearance is an agreement arranged between you and your lender to provide you with temporary relief from paying your mortgage for a specified amount of time, either by lowering or pausing the payments.

Borrowers typically request forbearance from their mortgage lender or servicer when there’s a change in their financial situation that impacts their ability to pay, such as a major illness, job loss or a natural disaster.

Forbearance doesn’t mean that you’re off the hook for the missed or reduced payments — you’ll still owe the amount you missed at a later date, usually when the forbearance period ends. The details of your forbearance can be negotiated with your lender, but typically, the initial period of forbearance lasts between three to six months. Many mortgage lenders have offered relief options during the pandemic, including extended forbearance periods and payment plans for when the borrower resumes regular and catch-up payments. It’s possible some of these private programs may still be available.

How mortgage forbearance works

The forbearance agreement will depend on the type of loan and your lender or servicer’s policies, but once it’s in place, your mortgage payments will be lowered or suspended for the agreed-upon time frame. In most cases, your loan will still accrue interest, but you’ll be relieved from the possibility of foreclosure.

Once the mortgage forbearance period is over, you’ll continue with your normal payment schedule, in addition to making up the missed payments. Your lender will work with you to figure out the best way to catch up, whether that’s through a payment plan or by making a large lump-sum payment or even adding the missed payments to your loan balance.

Should I apply for deferment or forbearance?

Both mortgage deferment and mortgage forbearance allow borrowers to cease making monthly payments temporarily. The difference lies in what happens when the temporary period is over.

In a deferment, your lender adds the amount that’s been deferred to the end of your loan term. That means you don’t need to worry about making extra payments in addition to your regular monthly payments like you would in a forbearance.

As for which option to pursue, it depends on your financial situation and whether you can afford to make catch-up payments sooner rather than later. If you expect your finances to improve quickly and you can afford the payments, then forbearance may be the best choice. On the other hand, if you don’t mind extending your loan term for up to an additional 12 months to make up payments, and you don’t foresee your situation improving anytime soon, then deferment may be the way to go, if the lender allows this.

What a forbearance agreement looks like

Forbearance agreements differ between mortgage lenders since they’re based on factors such as the investor requirements of your loan and the type of mortgage you have.

Whoever your lender is, your agreement will outline the terms of the forbearance period, such as:

• The length of the forbearance period
• How the missed payments will be repaid and any late fees you may 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

Can forbearance hurt my credit?

You should continue to make your mortgage payments until you receive a written notice that the forbearance agreement is in effect. If not, your lender could report those missed payments to the credit bureaus, which can negatively affect your credit score.

In addition, make sure to check your credit report regularly to ensure your lender doesn’t mistakenly report catch-up payments as late ones. If there is an error, ensure you dispute it as soon as you can.

How to ask for a mortgage forbearance

To request a mortgage forbearance, contact your lender or whoever services your mortgage payments as soon as possible. Typically, you’ll need to provide documentation proving that you’re experiencing financial difficulty.

In any case, you’ll need information such as your most recent mortgage statement, an estimate of your monthly expenses and your current monthly income. It’s best to have documents such as pay stubs, medical bills or a layoff notice handy in case you need to provide proof when you request a forbearance or extend an existing forbearance period.

What happens after forbearance?

Once the forbearance ends, you’ll have to determine a payment plan to repay what you owe from that period. Depending on who issued your home loan, you’ll have different options for repayment. In most cases, this includes repayment plans that adds to your existing monthly payment, deferment that pushes those payments to the end of your loan period, lump sum repayment that allows you to pay the missed payments all at once, or loan modifcation that changes the terms of your existing mortgage.

Bottom line

Forbearance is an available solution for homeowners who find themselves experiencing financial hardships. The arrangement can be negotiated with your lender to provide temporary financial relief. It is not an option that allows you to escape financial responsibility, but does defer some payments to allow you the opportunity to stabilize your situation.