When mortgage forbearance ends, you generally have four mortgage forbearance repayment options: pay the full past-due amount at once (reinstatement), spread it across several months of higher payments (a repayment plan), move it to the end of the loan (deferral or a partial claim), or permanently restructure the mortgage (a loan modification). Which ones your servicer will actually offer depends on your loan type, how many payments you missed, and whether your income has recovered enough to cover the original payment.
Every skipped payment still sits on the balance sheet. Forbearance pauses collection; it doesn’t erase debt. The moment the forbearance period expires, those missed payments become a delinquency on your account, and the loan sits in limbo until you and your servicer agree on a resolution.1Consumer Financial Protection Bureau. 12 CFR 1024.41 – Loss Mitigation Procedures
Contact Your Servicer Before Forbearance Ends
The single most useful thing you can do is reach out before the pause runs out. Servicers offer better terms to borrowers who act early, and waiting narrows your choices. Payment deferral, for example, typically requires you to be no more than six months behind, so drifting past that window closes the door on one of the friendliest options.2Fannie Mae. Payment Deferral
If you stop communicating entirely, the servicer will eventually move toward foreclosure. Federal rules prohibit them from starting that process until you are more than 120 days behind on payments, but that clock keeps ticking whether you engage or not.1Consumer Financial Protection Bureau. 12 CFR 1024.41 – Loss Mitigation Procedures
Reinstatement: Pay the Past-Due Amount in Full
Reinstatement is the cleanest resolution. You pay the entire past-due amount in one lump sum, and the loan snaps back to current. The original repayment schedule, interest rate, and loan documents stay exactly as they were.
The servicer calculates the reinstatement figure by adding up all missed principal and interest, plus any escrow shortages that built up during the pause. Those escrow amounts cover property taxes and homeowners insurance premiums the lender advanced while you weren’t paying.
Even after you reinstate, your servicer may still identify an escrow shortage from the forbearance months. Federal rules limit how aggressively they can collect it. If the shortage equals one month’s escrow payment or more, the servicer can only require repayment in equal installments spread over at least 12 months.3Consumer Financial Protection Bureau. 12 CFR 1024.17 – Escrow Accounts Your monthly payment may tick up slightly for the next year, but the servicer can’t demand the full shortage up front.
Reinstatement is demanding. Few borrowers coming out of a hardship have thousands of dollars in cash on hand. If you have the money, though, this option carries no long-term cost.
Repayment Plans: Spread the Past-Due Over Several Months
A repayment plan takes the total amount you owe from forbearance and spreads it across a set number of months, typically three to twelve. The servicer divides the past-due balance by the plan’s length and adds that extra amount to your regular monthly payment. If your normal payment is $1,500 and you owe $6,000 in missed payments over a six-month plan, you would pay $2,500 per month until the delinquency is cleared.
For Fannie Mae-backed loans, the total monthly payment under a repayment plan cannot exceed 150% of your regular monthly payment when the loan is more than 90 days delinquent or the plan runs longer than six months. Plans longer than 12 months require special approval.4Fannie Mae. D2-3.2-02 – Repayment Plan
Repayment plans work best for borrowers whose income has fully recovered but who lack the cash for a lump sum. Missing even one increased payment can void the agreement and push the servicer toward foreclosure. If you aren’t confident you can handle the higher payments for the full plan duration, deferral or modification is a safer bet.
Payment Deferral: Push the Balance to the End of the Loan
Payment deferral is often the most borrower-friendly option because it lets you resume your original monthly payment immediately. The servicer takes the total amount of missed payments and moves it to the end of your loan, where it sits as a separate balance that doesn’t accrue interest. You don’t owe that money until you sell the home, refinance, or reach the final payment.5Fannie Mae. D2-3.2-04 – Payment Deferral
For conventional loans backed by Fannie Mae, your loan must be at least two months delinquent but no more than six, and you cannot have received a prior deferral within the last 12 months.2Fannie Mae. Payment Deferral A disaster-related deferral allows up to 12 missed payments to be deferred. Freddie Mac offers a nearly identical program.
The deferred balance doesn’t increase the principal on which your monthly interest is calculated. Your payment stays the same, your rate stays the same, and no new loan documents get recorded with the county. That’s the key difference from a modification: nothing gets renegotiated, only reshuffled.
FHA Partial Claims
If your loan is insured by the Federal Housing Administration, the equivalent of payment deferral is a partial claim. The servicer files a claim with HUD for the amount of your missed payments, and HUD pays the servicer. In exchange, HUD places a subordinate lien on your property for that amount. The lien carries no interest, requires no monthly payments, and becomes due when you sell, refinance, transfer title, or reach your final mortgage payment.6U.S. Department of Housing and Urban Development. FHA Loss Mitigation Program
The maximum standard partial claim covers arrearages up to 12 months of mortgage payments, plus certain costs HUD approves in connection with the default.7eCFR. 24 CFR 203.414 – Amount of Payment, Partial Claims HUD has also introduced a payment supplement option that combines partial claim funds with a monthly principal reduction applied to your payment for 36 months, lowering your out-of-pocket cost during the supplement period without formally modifying the loan.8U.S. Department of Housing and Urban Development. Mortgagee Letter 2024-02 The partial claim lien has to be recorded in local land records, so there’s a small recording fee, but most borrowers don’t feel its weight until they sell or refinance years later.
Loan Modification: Rewrite the Mortgage Terms
A loan modification permanently changes your mortgage. Unlike deferral, which parks the missed payments at the end and leaves everything else alone, modification restructures the entire loan. The servicer rolls the past-due balance into the principal and re-amortizes the total over a new timeline, often at a different interest rate.
For FHA-insured loans, servicers can now extend the repayment term up to 480 months (40 years), spreading the balance thinner and driving down the monthly payment.9Federal Register. Increased Forty-Year Term for Loan Modifications VA loans also offer a 40-year modification as a final home-retention option.10U.S. Department of Veterans Affairs. VA Servicer Handbook M26-4, Chapter 5 – Loss Mitigation Stretching a mortgage from 30 to 40 years means paying significantly more total interest over the life of the loan, even if each monthly check is smaller.
The Trial Period
Before a modification becomes permanent, you’ll typically go through a trial period plan lasting three to four months. During this window, you make the proposed new payment amount each month. Complete every trial payment on time, and the servicer finalizes the modification, executes new loan documents (which must be notarized and recorded with the county), and often waives any late fees that accumulated during the delinquency.11Fannie Mae. Processing a Fannie Mae Flex Modification Miss a trial payment and the modification falls through.
Modification is designed for borrowers who have experienced a lasting income reduction and genuinely cannot afford their previous payment. If your income has recovered and you can handle the old terms, deferral or a repayment plan is simpler and doesn’t extend your debt obligation.
VA and USDA Loan Options
Government-backed loans through the VA and USDA follow their own loss mitigation sequences.
VA servicers work through a specific order, called a waterfall, when evaluating borrowers. They start with repayment plans, then a traditional modification that preserves the current payment amount, then a 30-year modification, then a VA partial claim (which works like the FHA version), and finally a 40-year modification as a last resort.10U.S. Department of Veterans Affairs. VA Servicer Handbook M26-4, Chapter 5 – Loss Mitigation The servicer must evaluate you for each step before moving to the next, so the process takes time, but it also means lower options remain available if the earlier ones don’t fit your budget.
USDA Rural Development loans offer a mortgage recovery advance, which functions similarly to a partial claim. The servicer can advance up to 30% of the unpaid principal balance to cover arrearages (capped at 12 months), legal fees, and even some principal reduction. This advance carries no interest and isn’t due until the modified mortgage matures, the home is sold, or the loan is paid off.12USDA Rural Development. Special Loan Servicing Job Aid Before using a mortgage recovery advance, the USDA requires the servicer to first attempt traditional servicing options like repayment plans and standard modifications.
Applying and What Protections Come With It
To access any of these options, you file a loss mitigation application with your servicer. Federal rules give servicers flexibility on the exact forms.1Consumer Financial Protection Bureau. 12 CFR 1024.41 – Loss Mitigation Procedures Most ask for recent pay stubs, your last couple of tax returns or W-2 forms, a breakdown of monthly expenses, and a hardship letter explaining what caused the setback and how your situation has changed. Submit through a channel that gives you a paper trail: an online portal with automatic confirmation, or certified mail with a return receipt.
That submission date matters. Once the servicer has a complete application, they have 30 days to evaluate you for all available options and tell you the result in writing.1Consumer Financial Protection Bureau. 12 CFR 1024.41 – Loss Mitigation Procedures Accuracy matters more than speed. If your income or expense figures are off, the servicer may evaluate you for the wrong program or kick the application back as incomplete.
A complete application also unlocks federal foreclosure protections. Servicers cannot start foreclosure until your mortgage is more than 120 days delinquent. Beyond that threshold, if you submit a complete application before the servicer has filed a foreclosure notice, they cannot proceed until they’ve evaluated you, told you the result, and either you’ve rejected all offered options, your appeal has been denied, or you’ve failed to perform under an agreed-upon plan. Even if foreclosure proceedings have already started, submitting a complete application more than 37 days before a scheduled sale stops the servicer from moving for a judgment, order of sale, or the sale itself while your application is under review. These protections only work if the application is complete; if the servicer tells you something is missing, respond immediately.
How Your Choice Affects Your Credit Report
Credit reporting during forbearance depends on whether your account was current when the accommodation started. If you were up to date when forbearance began, and it was part of a formal agreement, the account should generally be reported as current throughout. If you were already behind, the delinquency continues to appear until you bring the account current through one of the resolution options above.
After forbearance ends, the key moment is when the servicer reports your resolution to the credit bureaus. A completed reinstatement, successful repayment plan, or finalized deferral should result in the account being reported as current. A modification, once finalized after the trial period, does the same. The risk zone is the gap between forbearance ending and resolution being formalized: if you’re still in limbo during that window, some servicers may report missed payments. Another reason to start the conversation with your servicer before forbearance expires, not after.
Tax Consequences If Principal Is Forgiven
Most post-forbearance options, like deferral and repayment plans, don’t reduce the amount you owe, so they don’t create a tax event. But if your loan modification includes a reduction in principal balance, the forgiven amount is generally treated as taxable income. Your servicer will report it to the IRS on Form 1099-C, and you’ll owe income tax on the canceled amount unless an exclusion applies.13Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments
Two exclusions are most relevant to homeowners. The insolvency exclusion lets you exclude canceled debt from income to the extent your total liabilities exceeded the fair market value of your total assets immediately before the cancellation. The bankruptcy exclusion applies if the cancellation was ordered or approved by a bankruptcy court.13Internal Revenue Service. Publication 4681 – Canceled Debts, Foreclosures, Repossessions, and Abandonments A separate exclusion for canceled debt on a primary residence expired at the end of 2025, so for 2026 it no longer applies unless Congress renews it.
On the deduction side, if you deferred mortgage interest during forbearance and pay it later, you can deduct that interest in the year you actually pay it, not the year it originally accrued. Most homeowners use cash-method accounting, so deductions follow the actual payment date.14Internal Revenue Service. Publication 936 (2025) – Home Mortgage Interest Deduction