Forbearance AgreementCredit Repair Definition
A temporary agreement where a lender allows a borrower to pause or reduce payments for a limited time due to hardship.
Definition
A forbearance agreement is a short-term relief option offered by lenders (especially mortgage lenders) to borrowers experiencing temporary financial hardship. Under forbearance, the lender agrees to temporarily suspend or reduce the borrower's monthly payments for a specified period (e.g., 3-12 months). During this time, the borrower is not required to make full payments, providing breathing room to recover financially. However, forbearance is not debt forgiveness; the missed or reduced payments must eventually be repaid. Repayment options after forbearance typically include making a lump-sum payment, adding the missed amount to regular payments over time, or modifying the loan. Interest usually continues to accrue during forbearance, potentially increasing the total amount owed.
Frequently Asked Questions
How is forbearance different from deferment?
Both offer temporary payment relief. The main difference often lies in how interest is handled. In deferment (common with student loans), interest may or may not accrue depending on the loan type (e.g., subsidized vs. unsubsidized). In forbearance, interest almost always continues to accrue and is typically capitalized (added to the principal) if not paid during the forbearance period.
How do I repay the missed payments after forbearance ends?
Repayment options vary by lender and agreement but commonly include: (1) Reinstatement: Paying the total missed amount in one lump sum; (2) Repayment Plan: Adding a portion of the missed amount to regular monthly payments over several months; (3) Loan Modification: Permanently changing the loan terms (e.g., extending the term) to incorporate the missed payments; (4) Deferral/Partial Claim: Moving the missed payments to the end of the loan term, payable upon sale, refinance, or loan maturity.
Does forbearance affect my credit score?
Typically, entering into a forbearance agreement itself does not directly lower your credit score, provided the lender reports the account as current or in forbearance as agreed. However, the underlying hardship might affect other credit accounts. Also, if interest capitalizes, the increased loan balance could potentially impact scores later. Ensure you understand how the lender will report the account during forbearance.
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