Starting to miss a mortgage payment is stressful. Mortgage servicers or lenders provide several options for homeowners, depending on their situation, who are struggling to pay their monthly mortgage. Mortgage forbearance is one of the few options mortgage servicers may offer to give distressed homeowners temporary relief with their mortgage obligations.
Temporary relief in forbearance means homeowners can get a chance to pause or reduce their mortgage payments for a certain time, and then, pay it all back. Homeowners dealing with hardships such as serious illness, job loss, or a flooded home may ask their mortgage servicer for forbearance if they want to stay in the home and possibly avoid foreclosure. Forbearance depends on the servicer, type of the loan, and owner or investor requirements, which could be complicated.
Here are some of the payment options available to struggling homeowners who consider a mortgage forbearance:
- Six months paused payments – Some servicers allow homeowners to stop making payments for 6 months. After the forbearance period, the homeowner will need to settle everything by making a one-time payment in just a month. Homeowners should know that interest in paused payments increases until payment completion.
- Three-month payment reduction – Some servicers may offer homeowners to reduce mortgage payments by 50 percent for 3 months. After that period, the homeowner will have an increased monthly payment because the deducted payments are distributed in later payments for 12 months. For example, a homeowner with a $1,000 mortgage ($1,500 (reduced mortgage) / 12 months = $125) will have an additional $125 mortgage or will pay $1,125 for the next 12 months after the 3-month reduction period. Just like the 6-month paused payment option, interest on any reduced amounts will also continue to accrue until full repayment.
- One year paused payments – Some servicers may offer a homeowner to stop making payments for a year. The homeowner can either have a loan term extension to repay it in full at the end of the loan or by taking out another loan. Homeowners who consider repaying the paused payments with another loan should expect a much larger payment at the end of the loan term. Similar to the previous 2 options, interest on paused payments will increase until the loan is fully repaid.
Why homeowners prefer a mortgage forbearance?
A forbearance is a viable option for homeowners who believe that their financial hardship is temporary, and they have a workable plan to recover. Homeowners consider forbearance because it allows them to stay in the home and give them enough time to recover from their financial hardships. Homeowners who expect to miss making payments should immediately notify their servicer about their situation. Servicers could offer other mortgage assistance programs depending on the homeowners’ situation. It’s advisable for struggling homeowners to ask their servicers about mortgage assistance programs that they can take advantage of.
Some homeowners may think that forbearance is not an option for them as every homeowner experiences a different scenario. Aside from forbearance, homeowners may consider a repayment plan, deed-in-lieu-foreclosure, short sale, or a loan modification to possibly help them address their financial hardship.
Get in touch with your servicer
As someone expecting to miss mortgage payments, it’s important that you notify your mortgage servicer so you can learn more of your options to possibly keep up with your monthly payments.