With unemployment heading to 20% and mortgage delinquencies on the rise, a growing number of American home owners are turning to mortgage forbearance as temporary relief for their household budgets.

But what is forbearance, and how does it work? And does it make sense for you?

Mortgage forbearance is simply when you are allowed to temporarily pause or reduce your mortgage payments for a period of time. You will then have to pay that amount back once your regular mortgage payments resume. Forbearance has historically been for victims of natural disasters like floods or wildfires, but now due to the federal CARES Act, most lenders are allowing up to twelve months of forbearance for home owners who are economically affected by the COVID-19 pandemic.

Contrary to what you may have read, the mortgage payments you would put off are not due all at once when you resume your payments. So for instance, you could just add several more months to the end of your 30 year fixed mortgage. And for those borrowers who were current on their mortgage payments prior to forbearance, it should not affect your credit score due to recent federal law.

These are all incredibly helpful developments for households in a tight financial situation. However, there are consequences that you should be aware of before choosing forbearance.

For starters, having a forbearance on your record may temporarily stop you from being able to take out a new mortgage. Recent clarifications from the Federal Housing Financing Administration state that you may be able to obtain a new mortgage – i.e. refinance or buy another home – if you have been making payments during forbearance, or if you have made three months of consistent payments after your forbearance period ends. So if you need to move or refinance right away, you may want to reconsider getting a forbearance.

Secondly, while your lender may not make your skipped payments due in full at the end of your forbearance period, they may modify the terms of your loan. This may include higher monthly payments.

Finally, if you were not current on your monthly payments prior to going into forbearance, your missed payments during forbearance will adversely affect your credit score.

According to Penrith Home Loans mortgage consultant Jennifer Pacheco: “Mortgage forbearance can be a very helpful tool for financially stressed households. However, there are certain drawbacks that borrowers should consider. It’s always in your best interest to consult with your lender about the different options at your disposal if you are concerned about your ability to pay your mortgage.”

Mortgage forbearance can be highly beneficial to you if your household budget is stressed. However, there are a lot of unknowns and some potential problems that can arise, depending on your goals and circumstances. Feel free to consult with any of these financial experts I have done business with over the years, if you are ever curious about your mortgage options in this economy.