The Benefits of Mortgage Forbearance

Mortgage forbearance is an agreement in which the lender agrees not to foreclose on a home, with the borrower promising to a future payment plan meant to bring him current on the loan. It is important to note that mortgage forbearance is not a long term solution. Instead, it is meant for borrowers who have run into short term financial issues, and simply need a few months in order to get back on track.

Common reasons for needing mortgage forbearance include a job loss, or unexpected health problems.

Benefits for the Borrower

The borrower is sure to benefit from mortgage forbearance. If not, it would never be a consideration. The main benefit is simple to understand: the borrower is granted time to catch up on their missed mortgage payments, without having to worry about foreclosure.

Another benefit is the ability to customize a repayment plan that suits your needs. While the borrower and lender must work together, both parties will be in position to negotiate a mutually beneficial deal.

With a lot of flexibility, lenders often times can suspend payments for several months while the borrower gets his finances organized. Even if payments are not suspended, they can be lowered for the time being with the borrower agreeing to pay the money back at the end of the loan.  

Benefits for the Lender

On the surface, it may appear that mortgage forbearance is only beneficial to the borrower. But once you begin to consider all aspects of the situation, it is simple to see that this is not the case.

Lenders would much rather offer mortgage forbearance than go through the foreclosure process. Not only does this save them a lot of money, but it helps to cut back on wasted time as well. Believe it or not, lenders do not enjoy foreclosing on homes. This takes up a lot of resources, and in many cases the process takes a year or longer to reach completion. Not to mention, most foreclosures end up with the bank losing money.

Also, lenders know that they have a better chance of collecting the past debt through mortgage forbearance than they do through the foreclosure process. With the odds on their side, they are almost always willing to give forbearance a try as long as the situation will allow for it.

One thing many lenders do, before agreeing to mortgage forbearance, is increase the interest rate. While they may not be collecting payment in full at the present time, an interest hike can go a long way in helping them recover lost money in the future.

Final Note

Mortgage forbearance agreements do not release the borrower from financial responsibility. These agreements often times include a date on which the foreclosure process will begin, if the borrower does not live up to their end of the deal.

Both lenders and borrowers can benefit from mortgage forbearance. Those who are in a tight financial spot should contact their borrower to determine if forbearance is an option.

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