Forbearance
Quick Definition
A temporary agreement allowing a borrower to pause or reduce loan payments during financial hardship.
Key Takeaways
- Forbearance pauses payments but does not forgive the debt
- Interest typically continues to accrue during forbearance periods
- Contact your lender before missing payments — proactive communication yields better options
- Forbearance differs from deferment, which may not accrue interest on subsidized loans
What Is Forbearance?
Forbearance is a form of temporary relief granted by a lender that allows a borrower to pause or reduce loan payments for a specified period during financial hardship. Unlike forgiveness, forbearance does not eliminate the debt — missed payments and accrued interest must eventually be repaid through various arrangements including lump sum payment, extended repayment plan, or loan modification. Forbearance is commonly available for mortgages, student loans, and other installment debt. Mortgage forbearance gained widespread attention during the COVID-19 pandemic under the CARES Act. While forbearance prevents default and foreclosure, it can increase the total cost of borrowing due to continued interest accrual during the forbearance period.
Forbearance Example
- 1After a job loss, a homeowner receives 6 months of mortgage forbearance, pausing $1,800/month payments while searching for new employment.
- 2During COVID-19, over 8 million homeowners entered CARES Act forbearance programs with no credit score impact.
- 3A borrower in student loan forbearance for 12 months on a $30,000 balance at 6% accrues $1,800 in additional interest.
Related Terms
Mortgage
A loan secured by real property used to purchase a home, typically repaid over 15 to 30 years.
Student Loan
A loan designed to help pay for higher education expenses including tuition, room, board, and related costs.
Refinancing
Replacing an existing loan with a new one, typically to obtain a lower interest rate, different term, or access equity.
Credit Score
A numerical rating (typically 300-850) that represents a person's creditworthiness based on their credit history.
FAFSA (Free Application for Federal Student Aid)
The federal form used to determine eligibility for financial aid including grants, loans, and work-study programs.
401(k)
An employer-sponsored retirement savings plan with tax advantages, often including employer matching contributions.
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