What term is used to describe when a lender allows a borrower to suspend monthly payments and add the unpaid amount to the principal balance?

The term that accurately describes when a lender permits a borrower to temporarily suspend monthly payments and adds the unpaid amount to the principal balance is forbearance. In a forbearance arrangement, the lender and borrower agree to pause the borrower's obligation to make regular payments for a specified period, usually due to financial hardship or other qualifying circumstances.

This process allows the borrower some relief and time to recover financially without the immediate threat of foreclosure. The suspended payments, rather than being due immediately, are typically added to the loan balance, reflecting the total amount owed after the forbearance period. This mechanism is particularly useful during challenging economic times or personal crises, as it helps borrowers maintain their home while addressing the underlying issues affecting their ability to make payments.

The other options relate to different financial scenarios: a short sale involves selling a property for less than the owed mortgage amount; a loan modification typically changes the terms of a loan for a more favorable repayment condition; and a deed in lieu of foreclosure involves transferring the property ownership back to the lender to avoid foreclosure proceedings. Each of these concepts addresses distinct situations in real estate finance and borrower-lender relationships.