What’s the Difference Between a Forbearance Agreement, Repayment Plan, and Loan Modification?

When you’re having problems making your monthly mortgage payments, you might have a few options to negotiate with the lender to get current on your mortgage or make your payments more affordable. It’s important to understand the differences between a mortgage loan modification, forbearance agreement, and repayment plan, so you can choose the best option for your financial and personal situation.

What’s the Difference Between a Forbearance Agreement, Repayment Plan, and Loan Modification?

While forbearance agreements and repayment plans spread a couple of payments over a longer period, loan modifications permanently alter the monthly payment. Mortgage forbearance agreements and repayment plans are typically used when a homeowner has a temporary situation that makes it difficult to meet monthly payment obligations. However, a loan modification agreement may be a better option for a homeowner who simply cannot afford their mortgage.

What Is a Loan Modification?

A loan modification is an agreement between you and the lender to change the terms of your mortgage loan to make your monthly payments more affordable. Lenders may agree to one or more modifications to your mortgage, including lowering the interest rate, extending the loan term length, or forgiving a portion of the principal amount.

Altering the interest or extending the loan term are frequently favored by banks since forgiving part of the mortgage principal means the bank won’t be paid back some of the money they loaned. Waiving some principal can also have consequences for the homeowner, such as tax liabilities.

Click for more information on loan modification requirements.

What Is a Forbearance Agreement?

In a mortgage forbearance agreement, the lender agrees to temporarily suspend or reduce your monthly mortgage payments. Mortgage forbearance agreements may be used when you only need a few months of relief from your mortgage payments, such as when you are temporarily disabled from working or between jobs.

The interest on your mortgage loan typically continues to accrue during the forbearance period. To make up for it, you may be required to make a lump sum payment when the period ends or have slightly higher monthly payments over the rest of the loan period. Click here to learn how to request a mortgage forbearance from the bank.

What Is a Mortgage Repayment Plan?

Using a mortgage repayment plan to avoid foreclosure can help when you have missed one or two monthly payments. In repayment plans for mortgages, the lender agrees to spread out the past-due balance over months or years. Once you have paid off the past due balance, your monthly payments will return to their normal amount.

Get a Free Consultation with Our Debt Relief Attorneys to Evaluate Your Options

If you are having trouble making your mortgage payments, you have options for resolving your financial difficulties and keeping your home. Contact Loan Lawyers today for a free consultation to speak with our Fort Lauderdale loan modification lawyer.