Can Forbearance Benefit You?
Posted: Wednesday, November 30, 2005
by homebizguy
http://www.credit-repair-facts.com
Forbearance means that a lender agrees to let you delay your payments to them for a short period of time. That doesn't mean the lender has forgiven the debt, but just allowed you to pay what you owe at a later date.
Forbearance can be a good option to someone that is experiencing temporary financial difficulty. A forbearance agreement is most commonly applied to two kinds of loans, mortgages and student loans.
A forbearance mortgage means your lender agrees to let you delay your monthly mortgage payments for a short period of time. A forbearance mortgage is often combined with other programs that bring your monthly mortgage payments current after a negotiated period of time.
You sign a forbearance agreement that states the lender will require you to pay the amount in arrears. This is a much better option than going into mortgage foreclosure because that can hurt your credit rating.
Forbearance Student Loan
Most people have difficulty making student loan payments but your servicer may allow you to apply for a forbearance student loan. If they do grant you this option you will sign a forbearance agreement.
Under the forbearance agreement you are still responsible for interest as it accrues and any unpaid interest is added to your principal balance. That means that you will pay interest on a higher balance when you do resume your payments.
Even though that can possibly make your monthly payment go up, it is a much better option than defaulting on your loans. That can have negative effects on your credit score for years.
A lender will review and analyze your financial situation before offering you a forbearance agreement. Once a lender or servicer agrees to allow forbearance, it's very important that you follow through on any promises you make.
The best thing to do is ask your lender or servicer if forbearance is an option they will consider. Avoiding mortgage foreclosure and not defaulting on your student loans is always a better choice and forbearance may be a good way to accomplish it.
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Top-level comments on this article: (1 total)I wish this scenario was true in my case. Even though I worked out a forbearance agreement with my lender they still reported the six months I was under the forbearance agreement as delinquent. I recently attempted to purchase a new car but was denied due to being six months late on my mortgage (even though the loan was modified and I am now current). The lenders for the auto could care less about my agreement with my mortgage lender. All they see is six months with no payments. I even disputed the account with the credit bureaus as well as the mortgage lender but nobody is budging. While I know six months of non-payment while I was under the forbearance is not as bad as a foreclosure, I think it is important people understand a forbearance MAY have a negative effect on your credit rating. I am not stating that all institutions report the forbearance period to the credit bureaus but I know for a fact CitiMortgage does.Hi Eric, You're right, any time you are behind on your bills it will always affect your credit rating. Forbearance is just a much better option than going into foreclosure because that will hurt your credit rating much more and for a much longer period of time.
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