Forbearance may provide you with temporary financial relief that may help you revise your budget. If approved, your mortgage servicer allows you to temporarily stop making monthly payments; you may have an opportunity to pay down some other outstanding bills.
As of March 2021, mortgage servicers approved nearly 2.2 million property owners’ forbearance arrangements. According to Bankrate.com, some homeowners used that as an opportunity to reduce their credit card balances by 23% on average. Homeowners who did not request forbearance, however, experienced an average of only a 15% decline in their credit card balances.
A forbearance approval does not force you to stop payments
Economic uncertainty may motivate you to consider options that reduce your monthly outgo and add more cash to your savings. According to the Federal Reserve Bank of New York, between 30% and 40% of homeowners continued their mortgage payments while in forbearance. They viewed the temporary relief as a type of “insurance policy” that they did not need to use.
Reconstructing your budget may lead to a more affordable loan
By paying down your credit card balances, your credit score may improve enough to allow you to regain control of your budget. Depending on your income, you may qualify to refinance your mortgage and receive a lower monthly payment. Having more available cash may help you meet your other obligations.
Some mortgage servicers offer generous forbearance plans, but they may come with increased interest rates or require a balloon payment when they expire. You may, however, consider forbearance an option that may improve your financial circumstances. When it appears that a forbearance plan may not help your situation, a bankruptcy petition may provide other options to keep your home while you obtain financial relief.