You donât ever expect to have problems making your house payment, but life happens. Two of the potential steppingstones for mortgage relief are forbearance and deferment. Weâll break down forbearance vs. deferment and how the two often go hand in hand.
Deferring a home loan payment can provide much-needed temporary financial relief if you are struggling to make ends meet With the right approach, deferring home loan payments can help homeowners get through difficult times without losing their homes
In this comprehensive guide. we’ll explain everything you need to know about deferring home loan payments including
- What is a home loan payment deferral and how it works
- The differences between deferment and forbearance
- Who qualifies for a home loan payment deferral
- The pros and cons of deferring home loan payments
- Special payment deferral options during COVID-19
- Steps for how to apply for a home loan payment deferral
What Is a Home Loan Payment Deferral?
A home loan payment deferral allows a borrower to delay making one or more monthly mortgage payments. The missed payments are then tacked on to the end of the mortgage loan term.
This makes the home loan current without requiring a lump-sum payoff of the missed payments. The deferred payments plus interest are repaid when you pay off the mortgage at the end of the loan term, sell the home, or refinance.
Deferment provides immediate relief so you can get back on track with payments without added monthly burden. It helps homeowners experiencing temporary financial hardship avoid delinquency and foreclosure.
How Deferment Differs from Forbearance
Deferment and forbearance are two common forms of mortgage relief for borrowers facing hardship. But they have some key differences:
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Forbearance allows borrowers to temporarily reduce or suspend mortgage payments for a defined period. But the missed payments are still owed eventually.
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Deferment lets borrowers immediately postpone specific payments to the end of the mortgage. This brings the loan current right away.
Forbearance is more flexible, allowing reduced payments over time. Deferment tacks payments onto the end of the mortgage term as a lump sum.
Forbearance precedes deferment. Borrowers can request forbearance first to get through a difficult period, then request deferment to resolve the missed payments all at once rather than monthly.
Who Qualifies for Home Loan Payment Deferment?
To qualify for a standard deferment, you must:
- Be experiencing temporary financial hardship due to circumstances out of your control
- Have been current on your mortgage before the hardship began
- Be able to resume making your regular monthly payments
You also need a mortgage backed by Fannie Mae, Freddie Mac, or a government agency like FHA, VA, or USDA. Other lenders may offer similar deferment options.
The Pros and Cons of Deferring Home Loan Payments
Deferring home loan payments has several benefits:
Pros:
- Brings your mortgage current immediately
- Avoids foreclosure during temporary hardship
- Adds no extra monthly payments like repayment plans
- May help you keep your home long-term
Cons:
- Missed payments and interest get tacked onto the loan balance
- Hurts your equity buildup in the home
- May limit refinance/purchase options until paid off
- Requires lump-sum payoff eventually
Overall, deferment provides homeowners time to get back on their feet financially without immediate consequences. But it shifts the burden down the road, so it’s best for short-term needs.
Special COVID-19 Mortgage Deferment Options
Due to COVID-19, many lenders have offered more flexible deferment programs:
- Fannie Mae allows up to 18 months of missed payments deferred.
- Freddie Mac offers up to 12 months of COVID-19-related deferment.
- FHA, VA, and USDA mortgages can get special disaster-related deferrals.
These government-backed mortgages all have COVID deferment options for borrowers impacted directly or indirectly by the pandemic. Eligibility requirements are also more flexible than standard deferment.
How to Apply for a Home Loan Payment Deferral
If a deferment seems right for your situation, here are the steps to apply:
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Contact your mortgage servicer. Explain your hardship and intent to apply for deferment.
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Gather required documentation. This usually includes financial statements, hardship evidence, and proof you can resume payments.
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Submit your deferment application. Work with your servicer to complete the application and provide needed documents.
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Get approval. The servicer will review your application and notify you if approved.
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Resume payments. Once approved, continue making normal monthly payments. The deferred amount will be tacked onto your loan.
Most lenders want to help borrowers stay in their homes. If you’re transparent about your situation, they will likely want to work with you on a solution.
Alternatives to Deferment
While payment deferment is ideal for some, it’s not the only option. Here are a few other ways borrowers can get mortgage relief:
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Forbearance – Temporarily reduces or pauses payments for a set time.
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Repayment plan – Gradually catches up on missed payments by adding to the monthly amount.
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Loan modification – Permanently restructures the mortgage terms to reduce payments.
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Reinstatement – Pays off all missed payments at once in a lump sum.
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Refinance – Takes out a new mortgage on better terms to lower payments.
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Hardship assistance – Designed to help struggling borrowers based on need.
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Sale – Selling the home to pay off the mortgage may make sense in some cases.
Discuss your unique situation with your lender or housing counselor to find the most appropriate option.
The Bottom Line
Deferring home loan payments allows borrowers to postpone payments during temporary hardship and tack them onto the end of the mortgage term. This immediately brings the loan current without added monthly burden. While deferment isn’t right for every situation, it can help homeowners get through tough times without risking foreclosure.
If you’re facing challenges making mortgage payments, don’t struggle alone in silence. Talk to your lender right away to discuss deferment or other relief options. The earlier you seek help, the more options will be available to support you during difficult times. With the right plan, you can make it through hardship and keep your home long into the future.
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 youâve 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 isnât necessarily a question of which is right for you â 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.
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 itâs 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 theyâve 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 itâs paid off. Typically, a repayment plan might last 3 â 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 donât 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 canât 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 isnât 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.
Can I DEFER my Mortgage Payment? | What You Need To Know!!!
Should you get a mortgage deferral?
Let’s Summarize If you’re behind on your mortgage payments, a mortgage deferral could help you catch up on your home loan. If you qualify, a mortgage deferral lets you put your past-due payments at the end of your loan. Deferrals have their pros and cons and aren’t the best option for everyone.
What is a mortgage deferment?
A deferment typically moves any missed payments to the end of your loan to be paid when you pay off your mortgage. What Is Mortgage Forbearance? Mortgage forbearance is a temporary pause in your payments on your mortgage. Homeowners who request forbearance are often experiencing some sort of financial hardship that is temporary in nature.
What is a mortgage forbearance & mortgage deferral?
A job loss, injury, or other emergency can make it hard to keep up with groceries, utilities, and mortgage payments. Mortgage forbearance and mortgage deferrals are two mortgage-relief options that help homeowners who are struggling with their mortgage payments because of temporary difficulties.
How long can you defer a mortgage payment?
This new mortgage policy comes at a good time as foreclosures were up 13% in July from the same time last year, according to a report by ATTOM, a property data provider. Eligible borrowers may defer their mortgage payments for two to six months at a time, per Fannie Mae and Freddie Mac rules which were enacted on July 1.