When a borrower is having difficulty paying their mortgage, a mortgage forbearance arrangement is made. The agreement stipulates that the lender will reduce or even stop all mortgage payments for a specified period. The lender agrees to not initiate a foreclosure within the forbearance period.
At the end of the term, the borrower will have to make a full payment and pay an additional amount in order to keep up with missed payments. This includes principal, interest, taxes, insurance, and taxes. There will be different terms depending on the lender and the situation. Even though payments are suspended for a time, interest will continue to accrue with a regular forbearance arrangement.
A mortgage forbearance agreement does not provide a long-term solution to delinquent borrowers. It is intended for temporary financial difficulties caused by unforeseeable problems such as unemployment or health problems. Borrowers who have more fundamental financial problems, such as those who chose an adjustable-rate mortgage upon which the interest rates reset to a level making the monthly payments prohibitive, should seek out other solutions.
Forbearance agreements may be able to allow borrowers to avoid foreclosure while their financial situation improves. If the borrower is experiencing hardship, the lender might be able to extend the forbearance term.
