Saving Your Home (and Budget): Forbearance vs. Refinancing Explained

 

 

When life throws a financial curveball—whether from illness, job loss, or unexpected expenses—your mortgage can feel like an impossible burden. If you're struggling to make your monthly mortgage payments, two common options may offer relief: hardship forbearance and refinancing.

But which is better for your situation?

Understanding the differences, benefits, and drawbacks of both can help you make the best decision for your home and financial future.

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What Is Mortgage Hardship Forbearance?

Hardship forbearance is a temporary pause or reduction in your mortgage payments, granted due to a short-term financial hardship. It doesn’t erase your debt but gives you breathing room to recover financially.

How It Works:

• You request a forbearance from your mortgage lender or servicer.

• If approved, your payments are reduced or paused for a set period—typically 3 to 12 months.

• After forbearance ends, you must repay the missed payments through one of several options: lump-sum repayment, a repayment plan, or adding the amount to the end of your loan (called a deferral).

Who It Helps:

• Homeowners experiencing temporary financial difficulties (e.g., job loss, illness, natural disaster).

• Those who expect to regain income or improve their situation soon.

Pros:

• Immediate payment relief.

• Preserves your credit if you stay in communication with your lender.

• No closing costs or refinancing fees.

Cons:

• Payments are deferred, not forgiven.

• It may complicate future refinancing or borrowing while you're in forbearance.

• Not all loans qualify for all repayment options (especially lump sum vs deferral).

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What Is Mortgage Refinancing?

Refinancing means replacing your current mortgage with a new one—typically with better terms, such as a lower interest rate, longer term, or different loan type. It’s not a pause in payments, but a restructuring of your loan.

How It Works:

• You apply with a lender for a new mortgage.

• If approved, the new loan pays off your existing mortgage.

• You begin making payments on the new mortgage under its new terms.

Who It Helps:

• Homeowners with stable income and decent credit, but who want to lower their monthly payments or access equity.

• People who want to switch from an adjustable rate to a fixed rate or shorten/extend the loan term.

Pros:

• Can significantly reduce monthly payments if you qualify.

• May help you pay off your loan faster or tap into home equity for cash.

• Interest savings over time if rates are lower.

Cons:

• Requires good credit, stable income, and often home equity.

• Closing costs can be 2%–5% of the loan amount.

• Takes time to process—sometimes several weeks or more.

• May not be helpful for urgent or short-term crises.

Which Is Better: Forbearance or Refinancing?

Ask yourself:

Question	Forbearance	Refinancing
Are you in a short-term crisis (job loss, illness)?	✅ Best Option	❌ Not Ideal
Do you have good credit and steady income?	⚠️ Possibly	✅ Best Option
Do you need immediate payment relief?	✅ Yes	❌ Slower Process
Do you want to lower your payment permanently?	❌ Temporary Relief	✅ Long-Term Solution
Can you afford closing costs or fees?	✅ No upfront costs	❌ Yes, expect fees
Are you behind on payments or in default?	✅ May still qualify	❌ Often disqualifies you

		Combining Both Strategies In some cases, you might use both strategies sequentially: First, request forbearance during a hardship. Later, once your financial situation stabilizes, refinance your loan to get a more affordable long-term payment. Tip: Some lenders require you to be current on your mortgage before refinancing, so clearing your forbearance status first is key. How to Apply for Each Forbearance: Contact your mortgage servicer (the company that handles your loan). Explain your situation and request forbearance. Ask for clear terms: how long, repayment options, credit impact. Get the agreement in writing. Refinance: Shop around for lenders offering favorable terms. Check your credit score and fix any issues. Submit your application with income and financial documents. Close on your new loan—this may take several weeks. Final Thoughts If you're in a temporary crisis, hardship forbearance can give you fast relief without long-term consequences. But if you're financially stable and looking to reduce your payments or save money over time, refinancing may be a smarter move. Choosing the right option depends on your current financial health, goals, and eligibility. When in doubt, talk to a HUD-certified housing counselor—they can help guide you through your options for free.
		Helpful Resources:
		Consumer Financial Protection Bureau – Mortgage Forbearance Info
		HUD Housing Counseling Agency Locator