Life is an adventure. You have your ups and you have your downs. 

Sometimes, no matter how well you plan for what lies ahead, you’re thrown for an unexpected loop. While some loops are manageable, others are a bit more challenging. You can suddenly find yourself barely able to keep up with monthly financial obligations. You may feel like you’re drowning and reaching out in vain for something to grab hold of to keep you above water. 

If you’re a homeowner, one of the most common solutions during times of hardship is a mortgage forbearance. What is the definition of forbearance? It’s what happens when your lender stops or reduces your monthly payments temporarily. The action allows you some time to get your feet back on solid ground.

In this article, we’ll provide you with information about mortgage loan forbearance as well as your other options. 

Common Reasons for Loan Forbearance

Mortgage loan forbearance is for homeowners who find themselves struggling to keep up with their monthly mortgage payments. Common reasons for needing one include:

• A change in income due to job loss
• A natural disaster 
• Sudden medical issues

The goal of a mortgage forbearance is to avoid missing payments, which could otherwise lead to foreclosure. Not only does mortgage forbearance save you your home, but it also helps to protect your credit.

How Mortgage Loan Forbearance Works

One very important factor when it comes to mortgage loan forbearance is communication between you and your lender. You can’t just stop paying off a loan. Doing so will result in missed payments and negative marks on your credit history. 

With a mortgage forbearance, your lender reduces or stops your monthly payments temporarily. The exact length of time varies, but it generally only lasts for a few months. The goal is to provide you with enough time to get yourself back on your feet financially so that you can resume your payments. 

Before the end of your forbearance period, your lender will contact you to discuss repayment options. You do need to repay the months you skipped, plus the interest that accrued during that time. Neither your mortgage nor the skipped payments are forgiven. 

One option for repaying the amount you owe from forbearance is to bring your mortgage current. While not always the easiest and most reasonable solution, it is the fastest. You pay the entire balance owed in one lump-sum payment.

If this option isn’t possible, your lender may offer you a repayment plan. On such a plan, you can resume your regular monthly payments plus a little extra until you’re current on your mortgage. 

A third option is known as deferment. With this solution, you defer the amount owed until the end of your mortgage term. While deferment adds more time to the period you’re expected to make regular payments on your mortgage, it may be an ideal option if you can’t repay everything at once or afford higher monthly payments. 

Steps to Getting a Forbearance 

If you’re considering a forbearance or deferment, your first step is to get your financial information in order. 

You’ll need to collect your mortgage loan documents and your income information. Generally speaking, you’ll also need to provide a reason — including documents — as to why you’re requesting a forbearance in the first place. If your hardship is due to the pandemic, however, you won’t need to provide anything beyond citing COVID-19 as a reason. 

Once you have all your documents, contact your mortgage loan servicer. The last thing that you want to do is stop making payments without first discussing it with them. Doing so means you’ll have late payments, which will reflect in your credit history. During forbearance, however, lenders generally report you as current — even though you’re not making any payments. 

Following approval of forbearance, one of the first things that you should do is cease automatic withdrawals for your mortgage. Otherwise, your lender may continue to take payments from your account, even though you don’t have to make them. During your forbearance period, be sure to keep an eye on your mortgage loan statements as well as your credit reports.

At the end of your forbearance period, your lender will contact you to go over repayment options. 

Alternatives to Mortgage Forbearance 

A mortgage forbearance does have its advantages, but this doesn’t mean it’s your only option. As a homeowner, you have a few other solutions to consider.

Refinancing

One alternative to forbearance is refinancing, which may help you to secure a lower interest rate and a lower monthly payment. Keep in mind that it can take some time to close on the new loan. You’ll also need to pay closing costs. If your credit isn’t that great, you may also not get the best rates. 

Mortgage Modification

If you’re struggling to make your monthly mortgage payments and you need a longer-term solution than forbearance, a mortgage modification may be ideal. With this option, you and your lender can discuss altering the rate, monthly payments, or terms — or all of the above — of your loan.

In some cases, your lender may also forgive or cancel a portion of your mortgage debt, thereby reducing the total amount you owe. 

Sale-Leaseback

A third option is a sale-leaseback. Ribbon specializes in helping people convert the equity in their homes to cash by purchasing those homes and leasing them back. 

With this solution, you can sell your home, converting the equity you have built up over the years. And with a sale-leaseback, even though you’re selling your home, you don’t have to move. You can stay as a renter while paying monthly rent. 

The money Ribbon pays you for your house goes toward paying off the remaining balance of your mortgage and provides you with the rest to use however you see fit. 

Key Takeaways

Staying on top of your financial obligations during a hardship can be challenging as well as frightening. Fortunately, you have options that can help ease the burden and make it easier for you to get back on your feet. 

Mortgage loan forbearance is a common solution, but it’s not your only option. Understanding what options you have available can help you to choose the one that makes the most sense for you and your situation. Talk to a financial advisor to learn more about what options are available and which might work best for your needs.