Forbearance agreements, repayment plans, and loan modifications are mortgage workout options that borrowers can use to avoid foreclosure. In a forbearance agreement, the loan owner ("lender") agrees to reduce or suspend your payments for a set amount of time. With a repayment plan, the lender temporarily increases your monthly payment by adding part of the overdue amount to your current payments so that you can get caught up on the loan. In a modification, the lender typically lowers your monthly payment and brings the loan up to date by adding any past-due amounts to the balance of your debt.
A forbearance agreement provides short-term relief for borrowers. With a forbearance, the lender agrees to reduce or suspend mortgage payments for a while. During the forbearance period, the servicer (on behalf of the lender) won't initiate a foreclosure. In exchange, the borrower must resume making the full payment at the end of the forbearance period, and typically get current on the missed payments, including principal, interest, taxes, and insurance. You can usually:
The specific terms of a forbearance agreement will vary from lender to lender.
If a temporary hardship causes you to fall behind in your mortgage payments, a forbearance agreement might allow you to avoid foreclosure until your situation gets better. In some cases, the lender might be able to extend the forbearance if your hardship isn't resolved by the end of the forbearance period to accommodate your situation.
In a forbearance agreement, unlike a repayment plan, the lender usually agrees in advance for you to miss or reduce your payments.
If you’ve missed some of your mortgage payments due to a temporary hardship, a repayment plan might provide a way to catch up once your finances are back in order. A repayment plan is an agreement to repay the delinquent amounts over time.
Here’s how a repayment plan works:
The length of a repayment plan will vary depending on the amount past due and on how much you can afford to pay each month, among other things. A three- to six-month repayment period is typical.
A loan modification is a permanent restructuring of the loan where one or more of the terms are changed to provide a (hopefully) more affordable payment. If you're currently unable to afford your mortgage payment due to a change in circumstances, but you could make a modified payment going forward, this option might help you avoid a foreclosure.
With a modification, the lender might agree to do one or more of the following to lower your monthly payment:
Generally, to get a loan modification, you must:
You'll also have to meet all lender guidelines, which can be extensive and complicated.
Many different loan modification programs exist, including proprietary (in-house) loan modifications, as well as Fannie Mae and Freddie Mac Flex Modifications. Other special modification programs are also available for certain kinds of loans, like FHA-insured loans.
If you want to learn more about alternatives to foreclosure, consider talking to a foreclosure attorney or a HUD-approved housing counselor.