Forbearance
A temporary agreement to pause or reduce loan payments during financial hardship without triggering default.
What is Forbearance?
Forbearance is a temporary relief arrangement in which a lender agrees to pause, reduce, or suspend a borrower's required loan payments for a defined period due to financial hardship. Unlike a loan modification, which permanently changes loan terms, forbearance is a short-term deferral; missed payments must typically be repaid through a lump sum, a repayment plan, or by adding them to the end of the loan. Forbearance does not eliminate the obligation to repay—interest generally continues to accrue during the forbearance period. Mortgage servicers are required under federal law to offer forbearance options to borrowers experiencing hardship, including those affected by natural disasters. The CARES Act of 2020 granted broad mortgage forbearance rights to borrowers with federally backed loans during the COVID-19 pandemic.
Example
A homeowner who loses their job requests a 6-month forbearance from their mortgage servicer. Payments are suspended, but interest accrues on the outstanding balance. After the forbearance ends, the servicer and borrower agree on a repayment plan to spread the $9,000 in deferred payments across 18 additional months.