Mortgage Forbearance Vs. Deferment: What To Know
You don’t ever expect to have problems making your house payment, but life happens. Two of the potential steppingstones for mortgage relief are forbearance and deferment. We’ll break down forbearance vs. deferment and how the two often go hand in hand.
Table Of Contents
- What’s The Difference Between Mortgage Forbearance And Deferment?
- What Do You Need To Qualify For Mortgage Forbearance Vs. Deferment?
- How Do You Repay Your Mortgage After Forbearance?
- How Do Mortgage Forbearance And Mortgage Deferment Affect Your Credit?
- Mortgage Forbearance Vs. Deferment: Which Is Right For You?
- The Bottom Line
See What You Qualify For
Home Purchase
Home Refinance
Tap Into Equity
What’s The Difference Between Mortgage Forbearance And Deferment?
Mortgage forbearance and deferment are two options that are available to your loan servicer to help you gain temporary relief and then get back on track with your mortgage payment after experiencing a hardship. Your mortgage servicer is the entity you make your payment to each month.
While mortgage forbearance and deferment ultimately serve the same purpose by helping you stay in your home, there are differences. They also occur at different times.
Mortgage Forbearance
Mortgage forbearance is a temporary reduction or pause in your mortgage payment. It’s typically the first tool used by mortgage servicers to help you get mortgage relief and get back on your feet.
It’s used when you’re experiencing a temporary hardship such as a job loss, medical event or natural disaster that makes it difficult to keep up with your mortgage payments. Although you eventually have to resume full payments and make up what you missed, this gives you time to regain financial stability.
While you’re on forbearance, because you still owe the full payment at some point, interest continues to accrue. However, it’s only the interest that would have been due if you had made your payment on time under the terms of your mortgage. No additional interest is charged because you’re on forbearance.
Mortgage Deferment
Mortgage deferment takes full or partial missed payments from your forbearance and puts them at the end of your loan to be paid off when you finish the rest of your mortgage payments, refinance or sell your home. It’s one of many repayment options your servicer will consider for you when you exit forbearance.
With a deferral, you just pick up the same mortgage payment you had prior to forbearance when you’re ready to resume payments. As with forbearance, there’s no additional interest charge beyond what you would have paid at the time of the initial payment.
Mortgage Forbearance Vs. Deferral: At A Glance
Mortgage forbearance and deferral are both avenues that homeowners can use to avoid foreclosure and the loss of their home. However, there are big differences between the two. Here’s a table breaking down what we’ve touched on so far:
| Mortgage Forbearance | Mortgage Deferment |
|---|---|---|
Timing | Qualified when you initially contact your mortgage servicer about payment trouble | This is a repayment option after forbearance |
Payment Amount | May be lowered or paused | Stays the same |
Payment Schedule | Paused or reduced and paid back later; term may be extended depending on repayment qualification | Added to the end of the loan term |
Interest | The original interest that would have been charged at the time of the payment accrues. No additional interest is charged based on the payment being paid back later. If your interest rate is changed under a modification where payments are put back into the new balance, you’ll be charged the interest under the new rate. | Does not accrue beyond what would normally be due under the mortgage terms while payments are paused |
What Do You Need To Qualify For Mortgage Forbearance Vs. Deferment?
There are some similarities in the way one qualifies for forbearance and deferment, but there are also differences, both in terms of timing and the way qualification works.
Qualifying For Mortgage Forbearance
Qualifying for mortgage forbearance involves the ability to show a hardship. There could be a wide variety of reasons for this, including dealing with an ongoing medical issue, job loss or coping with a natural disaster, among others. In qualifying you for forbearance, your mortgage servicer may ask you for the following information:
- Nature of the hardship: They’ll want to know what’s happening and how long you expect the hardship to last.
- Documentation: They may also ask for items like bank statements and your bills or evidence of other expenses to know how much you can afford, if anything. Your servicer may or may not ask you to fill out a formal application.
If you qualify for forbearance, your servicer will approve you for a certain amount of time. Expect to check in periodically. How long you stay on forbearance may depend on not only your situation, but also on the rules of the investor in your mortgage (Fannie Mae, FHA, Freddie Mac, USDA, VA, etc.).
Qualifying For Deferment
Mortgage forbearance is typically qualified for when you initially contact your servicer about your payment issues. Qualifying for deferment comes later because it’s one of the options servicers can turn to when it comes to repayment.
The other point to be aware of when it comes to whether you get deferment is that your servicer qualifies you for it on the basis of your situation, but it’s not something you yourself can opt for. If it’s offered to you, the choice you have is whether to accept it or ask about other alternatives.
How Do You Repay Your Mortgage After Forbearance?
After your forbearance, you resume payments. You also need to make up payments missed while on a forbearance plan. Deferment is one way of doing that, but there are other alternatives:
- Reinstatement: You pay back everything you owe in a single lump sum payment. While it’s not feasible for everyone to do this, this is the quickest way to get current on your mortgage again. An example of when this might be the best option for someone is when they’ve been working without pay for some time and an employer comes through with the promise of back wages.
- Repayment plan: A repayment plan involves adding a portion of your past-due balance back into your mortgage payment each month until it’s paid off. Typically, a repayment plan might last 3 – 6 months.
- Loan modification: Loan modification involves changing the terms of your loan to put your past-due payments back into your mortgage balance. Your interest rate is likely to change and your payoff term could be extended.
If you don’t qualify for deferment or any other option, your servicer will go over other options if you can no longer stay in the home:
- Sell your home: If you can’t stay, this is the best possible outcome because you can use the proceeds to pay off your existing mortgage balance and take whatever is left over and use it to find other living arrangements.
- Short sale: In a short sale, your lender agrees to accept less than what you owe on the mortgage balance because the property isn’t worth the outstanding loan amount. In exchange, the lender controls the sale, including the authority to approve or reject any offers received. If you maintain the home, your servicer may offer you assistance toward finding your next place.
- Deed-in-lieu of foreclosure: This involves signing your property directly over to the lender upon their agreement. Again, in exchange for keeping the home up a bit, your lender may offer you financial assistance.
See recommended refinance options and customize them to fit your budget.
How Do Mortgage Forbearance And Mortgage Deferment Affect Your Credit?
Mortgage forbearance and deferment are generally considered negative credit events because you’re unable to make your payment according to the terms. Therefore, your credit score will usually decrease somewhat. However, the impact isn’t as bad or long lasting as a foreclosure would be.
There are occasional exceptions when credit scores may not be impacted. For example, in the wake of natural disasters, servicers often do non-credit reporting forbearances and mitigations.
Over time, you can build your credit score back up by maintaining good habits like making your payments on time, continuing to pay down debt and maintaining a low credit utilization.
Mortgage Forbearance Vs. Deferment: Which Is Right For You?
Your mortgage servicer makes the determination on what you qualify for and how they might best be able to help based on what you’ve shared with them about your situation in conversation or in an application for assistance.
For instance, deferment is often one of the simpler avenues for getting back on track with your mortgage because you just pick up the payment where you left off after forbearance. But you still need to qualify.
It isn’t necessarily a question of which is right for you – as these two things are typically used in tandem. Mortgage forbearance pauses or reduces your payment for a period of time. Deferment is one way to catch up with payments missed during the forbearance.
The Bottom Line
It’s really not forbearance vs. deferment. When implemented, forbearance is used to temporarily suspend or lower payments during a hardship. Deferment, the act of moving past-due payments to the end of the loan, is one of several alternatives servicers will look at to help you become current again on your mortgage payments.
It’s important to note that any decisions about mortgage relief you may receive ultimately rest with your servicer. If you find yourself having trouble making your mortgage payment, get in contact with your loan servicer as soon as possible.
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