Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Mortgage Forbearance Agreement

What it is:

A mortgage forbearance agreement is a contractual arrangement between a mortgage lender and a borrower to help the borrower catch up on payments when he/she is behind schedule.

How it works (Example):

A borrower makes monthly payments of principal and interest over the term of the mortgage (usually 30 years). If he or she fails to do so, the lender can foreclose upon the mortgaged property. Under a mortgage forbearance agreement, the borrowers agree to a short-term payment plan that brings them up to date on payments, and in the interim, the lender agrees not to foreclose on the mortgaged property.

Why it Matters:

A lender will sometimes agree to a mortgage forbearance agreement if the default is the result of financial hardship on the part of the borrower. These include, but are not limited to, job loss, a long-term illness or health crisis, or a sharp rise in the payments on an adjustable rate mortgage (ARM).