Everything You Should Know About Forbearance Agreements
In times of economic struggle, there are plenty of uncertainties that arise. However, one thing that you can expect is an increase in loan defaults. Loan defaults occur if you miss loan payments for more than a certain period of time. When this happens, wages can be garnished, vehicles can be repossessed, and the lender can even accelerate your loan by making your whole balance and interest due immediately. To save yourself the stress of losing your possessions immediately, you can consider filing for a forbearance agreement.
What is a Forbearance Agreement
Being unable to pay your loans can lead to a default which could pose serious consequences on both your finances and life. When you are having difficulty paying your loan fees, entering a forbearance agreement may be best for you. Forbearance agreements are a type of arrangement that both the lender and the borrower enter to delay the foreclosure process. More specifically, it involves the temporary suspension of mortgage payments which could help you remain in your home until your financial burden dissipates. Forbearance agreements are not guaranteed, so it’s important you know what the entire process entails.
It’s also important to understand that you are not alone. According to the Consumer Financial Protection Bureau, as of June 2021, there were over two million mortgage loans in forbearance in the United States.
Process of Obtaining a Forbearance Agreement
When you’re looking to enter a forbearance agreement, borrowers can request more information from their lender. Depending on your lender, they may require that the agreement is only made within a certain amount of time following a type of qualifying events like job loss, a disaster, or health issues. When you request this information, the lender will share agreement requirements with you. Most often include providing evidence of financial hardship.
Types of proof may include supplying the lender with your mortgage statements, additional statements of debt like credit cards and student loans, and any income details that you have including tax returns or pay stubs. Lenders will review the information you provide and determine if you qualify. If you do, the agreement process will follow.
Forbearance Agreement Length
Entering a forbearance agreement is a temporary fix to your immediate financial difficulties, however, it is not a long-term solution. Most agreements are short-term and designed to aid when borrowers experience unexpected and unavoidable financial struggles. The specific length of your agreement. There is no one-size-fits-all agreement since every single borrower’s situation is different and some lenders may be more lenient than others.
For example, one lender may offer you a 6-month agreement that allows you to avoid payments for that period of time while a different lender may request you contribute reduced monthly payments. Your specific lender will discuss the forbearance agreement length with you in detail when the agreement is being entered.
Loan Modification vs Loan Forbearance
Many people tend to confuse a forbearance agreement with a loan modification, but the two are substantially different. A loan modification allows borrowers to reduce, not eliminate, their monthly payments because of a change in interest rate, not due to financial stress. Loan modifications involve either reducing the interest rate, extending the length of your loan term, or making a variable interest rate into a fixed rate.
If the borrower is eligible, your lender may consider offering a loan modification at the end of loan forbearance.
Get Help. Schedule A Free Consultation Today
In the case of financial stress, you could benefit from discussing your situation with an experienced foreclosure defense attorney. The Aaronson Law Firm has 50 years of combined experience helping people through their loan difficulties. We’ll make sure you understand the entire process of forbearance and are prepared to make an agreement.
Contact us for a free consultation to discuss how we can best help you through a loan forbearance agreement today.