You hit upon hard times and cannot make your mortgage payment. You are not alone. You are probably not in too much trouble, either, as long as you act fast. Your lender has options for you, but you have to contact them. They will not contact you. If they do, it will be a collection call and the conversation will not be as easy as it would be if you called them. One of the options the lender may offer is mortgage forbearance. Understanding what it is and how it affects your credit can help you make the right decision.
What is a Mortgage Forbearance?
Mortgage forbearance is when the mortgage company grants you a “reprieve” from your mortgage payments. The break is temporary and it varies depending on the lender. Some lenders offer terms as long as one year. Others only grant a month or two. The premise behind the help is to allow you time to get back on your feet. Let’s say you lost your job and ran through your savings. Now you have no money to pay your mortgage. Before you ever become late on that mortgage, you should contact your mortgage company. Let them know what happened and what you need. If you have a plan in place, chances are they will grant you some type of help.
How Does Forbearance Work?
Forbearance can work in two ways: you can get a complete break from your mortgage payments or you get a reduced payment for a while. Either way, you do not make the full mortgage payment. You only pay what you can afford. Once the agreement expires, though, you must pay your full mortgage payment, plus a portion of the payments you missed. You continue in this manner until you are caught up again. If you reach the end of your agreement and life did not pan out the way you thought, your lender might suggest a short sale.
The Effect on Your Credit
You might think forbearance would be really bad for your credit. After all, you might not make any payments at all. However, it is not as bad as you think. In some cases, lenders do not even report it to the credit bureau. This is likely because they have an agreement with you, helping you to get current on your loan. However, if you default on your mortgage after the agreement is over or you do not meet the terms of the agreement, the lender will likely report it to the credit bureaus. Whether or not your credit score is affect is really a toss-up as it depends on the lender’s decision on how to proceed.
Should you Choose Forbearance?
Whether or not you should choose forbearance depends on your personal situation. Do you see a light at the end of the tunnel? Is your situation temporary? This is common with illnesses or injuries that make a person unable to work temporarily. Job loss is sometimes harder to gauge because you cannot predict the future regarding when you will find a new job. However, you know your skills and what you might expect. If you can convince the lender to provide you with a longer forbearance period, you might have better luck in meeting the terms of the agreement. If, however, they will only grant you a month or two, you might want to reconsider and choose the short sale option.
The bottom line is you should never ignore your financial difficulties when it comes to your mortgage. Your lender needs to know what is going on so they can help you. If it reaches the point that the lender has to reach out to you, they will likely be less favorable with their options for you. Forbearance is a way to help you stay in your home without causing further financial destruction. If you have this opportunity, use it wisely so that you can stay on good terms with your lender and hopefully they decide not to report it to the credit bureaus at all.