What is 'Forbearance'

Forbearance is a temporary postponement of mortgage payments. Forbearance is a form of repayment relief granted by the lender or creditor in lieu of forcing a property into foreclosure. Loan owners and loan insurers may be willing to negotiate forbearance options, because the losses generated by property foreclosure typically fall on them.

BREAKING DOWN 'Forbearance'

Forbearance provides the borrower time to repay delinquent mortgage sums. This is advantageous to the struggling borrower, and offering forbearance benefits the loan owner, which frequently loses money on a foreclosure after paying the fees associated with the process. On the other hand, loan servicers, which collect payments but do not own the loans, may be less willing to work with borrowers on forbearance relief because they do not bear as much financial risk.

Forbearance Terms

The terms of a forbearance agreement are negotiated between the borrower and lender. The opportunity for such an agreement depends on the likelihood that the borrower will be able to resume monthly mortgage repayments once the temporary forbearance is over. Moreover, the lender may approve a full or only a partial reduction of the borrower's payment depending upon the extent of the borrower's need and the lender's confidence in the borrower's ability to catch up at a later date.

In some cases, the lender grants the borrower a full moratorium on making mortgage payments for the forbearance period. Other times, the borrower is required to make interest payments but not pay down principal, or the borrower pays only part of the interest with the unpaid portion resulting in negative amortization. Another forbearance option is for the lender to reduce the borrower's interest rate on a temporary basis.

Receiving Forbearance

Being awarded forbearance on a mortgage requires contacting the lender, explaining the situation and receiving approval. Borrowers with a history of making payments on time are more likely to be granted this option. The borrower must also demonstrate cause for repayment postponement, such as financial difficulties associated with a major illness or the loss of a job.

For example, a borrower who worked the same job for 10 years and never missed a mortgage payment during that time is a good candidate to receive forbearance following a layoff, particularly if the borrower has in-demand skills and is likely to land a comparable job within weeks or months. Conversely, a lender is less likely to grant forbearance to a laid-off borrower with a spotty employment history or a track record of missing mortgage payments.

RELATED TERMS
  1. Mortgage Forbearance Agreement

    An agreement made between a mortgage lender and delinquent borrower ...
  2. Delinquent Mortgage

    A mortgage for which the borrower has failed to make payments ...
  3. Mortgage Short Sale

    The sale of a property by a financially distressed borrower for ...
  4. Workout Assumption

    The assumption of an existing mortgage by a qualified, third-party ...
  5. Short Refinance

    The refinancing of a mortgage by a lender for a borrower currently ...
  6. Serious Delinquency

    When a single-family mortgage is 90 days (or more) past due and ...
Related Articles
  1. Personal Finance

    Top 6 Mortgage Mistakes

    These common errors could end in foreclosure.
  2. Investing

    Homeowners, Beware These Scams!

    If you're in a pinch for money, you're the prime target for con artists and thieves.
  3. Personal Finance

    How Regulations Protect Reverse Mortgage Borrowers

    They're complex animals, which is why there are government guidelines in place to protect borrowers.
  4. Personal Finance

    Purchasing a Home with Bad Credit Is Possible: Here's How

    A bad credit report can become an obstacle, resulting in denials for credit or higher interest rates, but borrowers with low credit scores can still purchase a home.
  5. Personal Finance

    Understanding the Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Personal Finance

    Best 3 Mortgage Calculator Websites for Canadian Residents

    Understand the key features of Canadian mortgages, and discover a few of the best online mortgage calculators for Canadian home loans.
  7. Personal Finance

    Trended Credit Data Could Increase Interest Rates for Borrowers (FNMA, EFX)

    Mortgage lenders will soon be required to use trended credit data to qualify borrowers. As a result, many borrowers could have to take higher interest rates.
  8. Investing

    Understanding The Mortgage Payment Structure

    While a mortgage’s size and term set the baseline, the interest, taxes and insurance all influence the amount of the monthly payment.
RELATED FAQS
  1. Does interest on my student loan accumulate during forbearance?

    Learn the differences between student loan deferment and forbearance and how interest accumulates on the principal loan balance ... Read Answer >>
  2. What’s the difference between a mortgage lender and a mortgage servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  3. What is PMI, and does everyone need to pay it?

    Also known as "Primary Mortgage Insurance," PMI is the lenders (banks) protection in the event that you default on your primary ... Read Answer >>
  4. When Is Mortgage Insurance Typically Required?

    Learn about the situations in which borrowers may be required to buy private mortgage insurance, and discover who this insurance ... Read Answer >>
  5. What is the 1003 mortgage application form?

    Learn about the 1003 mortgage application form, what information it requires and why this form is the industry standard for ... Read Answer >>
  6. My mortgage payments are no longer affordable; is there anything that I can do to ...

    The most important thing for you to remember if you find that you may not be able to make this month's mortgage payment is ... Read Answer >>
Trading Center