Forbearance

Remember that nursery rhyme about the old woman who lived in a shoe? The one who had a bunch of kids and fed them broth without bread for dinner? Well, we often wondered—as we’re sure many children did—what would happen if the old woman were to lose her job. Would she still be able to afford her shoe? Or would she lose the shoe and have to move her family into something far less suitable, like a flip-flop or a Croc?

Luckily, the old woman might have had another option. She might have been able to talk to her mortgage lender about a forbearance, which is when a lender agrees to not foreclose on our house even though we can’t pay the mortgage.

Forbearances are temporary—we can’t just stop paying our mortgage forever—and we usually have to make up the amount later, either with greater monthly payments or a lump-sum payment once we get some cash rolling in. While the forbearance is in effect, we either agree to pay no mortgage at all or a much lower amount every month, and the loan principal continues to accrue interest.

Forbearances are also available in certain federal student loan situations. If we’re in a rough financial spot and don’t think we’ll be able to make our loan payments for a little while, we can contact our lender and find out if a forbearance might be right for us. It would certainly beat moving into a Croc.