Forbearance

Lenders may offer forbearance when borrowers experience temporary difficulties, such as job loss, illness, natural disasters or other emergencies. Rather than pushing the borrower into default or foreclosure, the lender gives them time to recover.

Forbearance can take several forms, including a temporary pause in payments, reduced payments for a period, a switch to interest-only payments or an extension of the loan term.

For example, during the COVID-19 pandemic, many governments and lenders offered mortgage payment holidays, allowing homeowners to pause payments for several months.

Forbearance does not usually cancel the debt. In most cases, interest continues to build during the forbearance period, and the missed payments must be repaid later, either in a lump sum, by increasing future payments or by adding them to the loan balance. This can make the loan more expensive overall.

Borrowers should understand exactly how missed payments will be repaid and how forbearance may affect their credit file before agreeing to it. In many countries, regulators require lenders to treat borrowers in financial difficulty fairly and to consider forbearance before taking legal action.