What Is Forbearance?
Forbearance refers to the temporary postponement of loan payments, often used for mortgages and student loans. It acts as an alternative to foreclosure or default, providing financial relief when needed.
Lenders and creditors offer forbearance to avoid the losses associated with foreclosure or default, making it beneficial for both parties involved.
Key Takeaways
- Forbearance allows temporary postponement of loan payments instead of foreclosure or default.
- Terms are negotiated between borrower and lender.
- Borrowers must show financial hardship, such as illness or job loss.
Understanding Forbearance
Forbearance applies to various loans and offers extra time for repayment. This relief helps borrowers facing financial difficulties and aids lenders in mitigating potential financial loss from defaults or foreclosures. Note that loan servicers, who do not own the loans, may be less inclined to offer forbearance options.
How to Apply for Forbearance
To apply, contact your lender or loan servicer. Proving financial hardship is critical, and a consistent payment history improves the chances of approval. For example, a reliable longtime employee recently laid off is a strong candidate for forbearance.
Forbearance for Student Loans
The CARES Act mandated student loan forbearance, suspending payments, setting interest rates to 0%, and halting negative credit reports until 2023. The Saving on a Valuable Education (SAVE) plan offers more relief, making it distinct from forbearance as the loans remain technically in repayment.
Forbearance for Mortgages
The CARES Act also extended mortgage forbearance for federally backed loans, with deadlines for requests until April 2023. The Homeowner Assistance Fund further supported this, ensuring lenders cannot demand lump-sum repayments for missed payments during COVID forbearance periods.
What Happens After Forbearance Ends?
Post-forbearance, borrowers must resume and catch up on missed payments. Late fees and accrued interest might be due depending on the agreement with the lender.
Will Forbearance Affect Your Credit Rating?
Forbearance doesn’t negatively affect credit ratings. However, missed payments prior to setting up terms can lead to negative credit impacts.
Will Forbearance Affect Refinancing?
While in forbearance, refinancing is not permitted, impacted by any missed mortgage payments. Individual circumstances and lender policies vary, so check with your provider.
How Do I Get Out of Forbearance?
At the end of forbearance, there are different ways to repay the missed amount: immediate lump-sum reinstatement or a structured repayment plan over time.
The Bottom Line
Forbearance offers temporary relief by delaying loan payments — but not erasing the debt. After the grace period, full repayment resumes. Consulting with lenders about your specific situation can provide the best path forward.
Related Terms: foreclosure, default, loan servicer, principal repayment, negative amortization.
References
- U.S. Congress. “H.R. 748 - CARES Act”, Sections 3513 and 4023.
- U.S. Department of Education, Federal Student Aid. “Student Loan Forbearance”.
- U.S. Department of Education, Federal Student Aid. “COVID-19 Emergency Relief and Federal Student Aid”.
- Supreme Court of the United States. “22-506 Biden v. Nebraska”.
- The White House. “FACT SHEET: The Biden-Harris Administration Launches the SAVE Plan, the Most Affordable Student Loan Repayment Plan Ever to Lower Monthly Payments for Millions of Borrowers”.
- U.S. Department of Education, Federal Student Aid. “SAVE Repayment Plan Offers Lower Monthly Loan Payments”.
- Consumer Financial Protection Bureau. “Mortgage Forbearance During COVID-19”.
- The White House. “Bill Signed: H.J.Res. 7”.
- U.S. Department of the Treasury. “Homeowner Assistance Fund”.
- Consumer Financial Protection Bureau. “Get Homeowner Assistance Fund Help”.
- Consumer Financial Protection Bureau. “Protecting Your Credit During the Coronavirus Pandemic”.
