Mortgage forbearance is not as helpful as you may think

In times of widespread financial crisis, mortgage companies may extend an offer to help. For homeowners like you who are in need, it may seem like a welcome relief from the crushing financial obligation.

Forbearance is a practice lenders may offer homeowners to provide some short-term relief. However, it is not as beneficial as you may hope. When you are hard-pressed to pay your bills during a financial pinch, it is especially important to understand your options before fully agreeing to forbearance.

What is forbearance, and what does it do?

Lenders do not want you to miss mortgage payments. If you lose your job, the lender may agree to reduce your monthly payments temporarily, or in some instances, stop payments for a time.

This forbearance is completely up to the discretion of the lender, as is the time period throughout which it lasts. In a time of a national crisis, lenders may grant a blanket forbearance, allowing all customers in a financial bind to either reduce or pause their mortgage payments for a prescribed time.

What is the problem with forbearance?

While it may help in the short-term to stop paying mortgage payments or pay a reduced amount, it can present a greater problem in the future. The difference is not forgiven or forgotten. The money you did not pay, while it was with the lender’s permission, is still due at some point.

Some lenders may agree to tack it on to the end of your mortgage term. More often, however, lenders will increase your monthly payment for as long as it takes for you to become current. Most people suffering from economic hardship do not find relief in having higher payments. Thus, while the relief of forbearance is welcome in the short-term, the consequences may cause even more stress down the road.

When a financial crisis makes it impossible for you to pay all of your bills, you may seek help from those servicers. While this may provide some relief, you should understand that this is a temporary fix. Alternative options, such as bankruptcy, may provide the type of long-term help you need to truly improve your financial outlook.