What Is Forbearance?
Let me explain forbearance directly: it's the temporary postponement of your loan payments, usually for a mortgage or student loan. Lenders offer this as an alternative to pushing you into foreclosure or letting you default. If you're a borrower, this means you get a break, but remember, mortgage lenders and servicers often agree to it because they bear the losses from foreclosures or defaults.
Understanding Forbearance
You need to know that forbearance is mainly for student loans and mortgages, giving you extra time to repay if you're struggling. It also benefits lenders by avoiding the costs of foreclosure, where they repossess your property due to nonpayment. Loan servicers, who just collect payments without owning the loans, might be less eager to negotiate since they don't face the same risks. The agreement terms are worked out between you and the lender, and your chances depend on how likely you are to catch up later. They might reduce your payments fully or partially, based on your situation and their confidence in you.
Possible Forbearance Options
- A complete pause on payments for a set period.
- Paying only interest without touching the principal.
- Paying part of the interest, with the rest added to your debt through negative amortization.
Forbearance Under COVID-19
During the pandemic, forbearance was sometimes required by law. The CARES Act in March 2020 mandated it for federal student loans and provided options for mortgages, suspending payments and setting interest to zero. This relief ended in 2023, with interest resuming in September and payments due in October. Be aware that receiving forbearance doesn't erase your debt—you still have to make up those missed payments eventually.
How to Apply for Forbearance
Contact your lender or servicer directly to apply. You'll need to show a valid reason, like job loss or major illness causing financial hardship. Lenders have discretion here, so if you've got a solid history of on-time payments, you're more likely to get approved. For instance, if you've been steady for years and just got laid off but can likely find work soon, that's a strong case. They might even temporarily lower your interest rate as part of the deal.
Forbearance for Student Loans
For student loans, the CARES Act paused federal ones until 2023, but that's over now. Don't confuse this with forgiveness, which is permanent relief—the Biden plan for up to $20,000 was blocked by the Supreme Court. Then there's the SAVE plan, an income-driven option where some borrowers could get $0 payments based on income thresholds, but it's currently blocked by courts as of mid-2024, putting enrollees into interest-free forbearance. Private loans might offer forbearance at the lender's discretion, but no federal mandates apply. If you're in SAVE and nearing forgiveness like PSLF, you can buy back months or switch plans—check with your servicer, especially since a court ruling prevents implementing SAVE and other IDR plans until at least September 2025.
Forbearance for Mortgages
If you're a homeowner struggling with payments, mortgage forbearance can help avoid foreclosure, but the lender must approve it. Provide details on your finances when applying. Under the CARES Act, federally backed mortgages got forbearance extensions until the national emergency ended in 2023. The Homeowner Assistance Fund offered more relief but has concluded. Not all borrowers qualify, so prepare your case carefully.
What Happens After Forbearance Ends?
When the period ends, you have to make up the missed payments. Your lender will work with you on a plan, like reinstatement (paying everything at once) or a repayment schedule over time, often 12 months. For COVID-19 forbearance on federal loans, no lump-sum repayment was required. You might owe accrued interest or fees, depending on terms. Note that forbearance itself doesn't hurt your credit if set up properly, but missing payments before does. It can block refinancing until you're out of it—check with providers for exceptions. Discrimination in lending is illegal, so report any issues to the CFPB or HUD.
The Bottom Line
In summary, forbearance gives you a temporary break on loan payments, but it's not forgiveness—you still owe the money, plus any interest that built up. At the end, resume full payments and catch up on what's due. If you can't, talk to your lender about options to avoid bigger problems.
Other articles for you
A franchisee is an independent business owner who operates under a franchisor's brand, paying fees for rights to trademarks and support.
An offering memorandum is a legal document that details the objectives, risks, and terms of private investments to inform sophisticated investors.
A stock market crash involves a sudden, sharp drop in stock prices often triggered by events or panic, leading to economic repercussions, with measures like circuit breakers in place to mitigate them.
Default risk measures the chance a borrower won't repay debts, influencing interest rates and credit decisions.
Affiliate marketing is a performance-based model where companies pay affiliates for driving traffic, leads, or sales to their products.
Momentum trading involves capitalizing on the speed of price changes in securities to profit from ongoing trends using technical tools.
Term life insurance provides a death benefit for a specific period, offering affordable coverage without cash value, and can be renewed or converted, differing from permanent policies.
The theoretical ex-rights price (TERP) estimates a stock's value after a rights issue that dilutes shares by offering them at a discount to current shareholders.
Year-over-year (YOY) is a method to compare financial or economic data from one period to the same period a year earlier to assess growth or changes.
A 125% loan allows homeowners to borrow up to 125% of their property's value for refinancing, often to access extra cash despite risks and high rates.