A forbearance agreement is a legal contract between a borrower and a lender that allows the borrower to temporarily delay or reduce their loan payments. Essentially, it provides the borrower with the ability to pause their loan payments and gives them some breathing room to get their finances in order.
Forbearance agreements are typically used when a borrower is experiencing a financial hardship such as a job loss or medical crisis. It`s a way for the lender to work with the borrower to avoid default or foreclosure. By entering into a forbearance agreement, the borrower is agreeing to make reduced or no payments for a certain period of time, while the lender agrees not to take any legal action against the borrower during this time.
It`s important to note that forbearance agreements are not a long-term solution and can have consequences such as increased interest or extending the loan period. It`s important for borrowers to understand the terms of the agreement and how it will impact their overall loan.
Forbearance agreements are commonly used in the mortgage industry, but can also be used for other types of loans such as student loans or personal loans. The terms of the agreement will depend on the specific lender and type of loan.
In order to enter into a forbearance agreement, the borrower typically needs to provide documentation of their financial hardship and prove that they are unable to make their current loan payments. The lender will then assess the situation and determine if a forbearance agreement is a viable option.
Overall, a forbearance agreement can be a helpful tool for borrowers facing financial difficulties, but it`s important to fully understand the terms and potential consequences before entering into the agreement. It`s always a good idea to work with a financial advisor or attorney to ensure that your best interests are protected.