Mortgage Forbearance Agreement – What to Know
Mortgage loans are some of the most basic financing options an individual has when purchasing a house. It is understood as a loan from a lender for a certain amount, allowing a borrower to pay it off in increments with the addition of a certain amount of interest. Failure to pay would inevitably result in extra fees or even the loss of the property bought.
While the thought of losing a home or foreclosure is extremely nervewracking, many mortgage professionals don’t want you to reach that point. In the case that a borrower can’t pay off their debt for any reason, they still have other options to avoid losing the home they’re paying for. One such option is through a mortgage forbearance agreement.
What Is Mortgage Forbearance?
A mortgage forbearance agreement is a mutual agreement between a lender and a borrower to alter the payment plan agreed upon at the request of the borrower. Considered as a short-term solution, this is commonly done for extreme situations that render a borrower—given that they are usually able to pay on a regular basis—unable to pay for a certain period.
It usually involves a lender’s agreement to forego exercising their right to foreclose on a mortgage for a specified agreed upon length of time. During this period, the borrower is expected to fix or alter their situation in order to be able to continue payment after the specified time span has passed.
Within this time span, a borrower may be allowed to either pay a reduced amount or even no amount within the forbearance period. This does not mean, however, that the amount is waived—it is still expected to be paid in entirety after the agreed-upon date. The lender and borrower will then have to come up with a payment plan that will include the amount of money not paid during the forbearance period.
Why Use It?
As stated, this is a short-term plan for borrowers who have suddenly found themselves unable to pay their loans for a short amount of time. While this may seem like a novel idea for the errant and delinquent borrowers, there is usually an extensive background check to prove the need for a forbearance agreement. As such, this is best done only by those faced with an extreme situation that can be resolved within a short period of time (such as losing a job, a death in the family, or in special cases such as being affected by the COVID-19 pandemic).
Forbearance v.s. Modification
While this involves altering the payment plan of your loan for a short period, this is not to be confused with a loan modification agreement. Loan modification or restructuring is often done as a more long-term solution for the inability to pay off a borrower’s debt. This will include a different set of requirements and parameters, such as proving why a modification will make them be able to pay off their debts better. For the best solutions, contact an expert for financial advice.
Mortgage forbearance agreements are one solution you can use to avoid losing the home you’ve been working hard in obtaining fully. By speaking properly with a mortgage professional, you can find the best option for paying off your debt.
Are you looking to refinance your mortgage in Colorado but don’t know how? At Move Mortgage, we’ll help you achieve the loan you need to get your finances on the right track. Speak to one of our specialists today!