Homeowners have two options for temporarily pausing or lowering their monthly mortgage payment during times of hardship: deferment and forbearance. The primary differences between the two are whether interest accrues and when you're required to repay.
What’s the Difference Between Mortgage Deferment and Forbearance?
|Payment help||Delays, but does not reduce, the deferred payment until the end of the loan||Delays or reduces payment for a specific period of time|
|Interest accrual||In some cases, no interest will accrue on deferred payments||Normal interest accrues on payments missed during forbearance|
|Missed payments||Paid at the end of the loan period||May be required to be paid at the end of the forbearance period, depending on the forbearance terms|
Deferment allows mortgage borrowers to delay payments previously missed during a forbearance period and repay them at the end of the loan period. While a portion of your mortgage payments are deferred, your regular monthly mortgage payments must be paid on time.
Forbearance pauses or reduces payments for homeowners who are experiencing temporary hardship. While borrowers have the option to make payments during the forbearance period, they're not required. Some lenders may require you to provide regular updates on your finances during the forbearance period.
Making payments during forbearance reduces the amount due at the end of that period.
Mortgage payments that have been deferred to the end of the loan don't accrue additional interest. With forbearance, on the other hand, interest will accrue normally each month as scheduled.
With forbearance, you may be required to make up the missed payments after the forbearance payment ends, depending on the loan and the forbearance terms. For example, if your monthly mortgage payment is $1,400 and you apply for six months of forbearance, you'll owe $8,400 in missed payments at the end of forbearance.
Deferment allows you to delay missed payments to the end of the loan period, when you sell or transfer the home or refinance.
Which Is Right for You?
Deferment may be right for you if you've just ended a period of forbearance and can afford to resume monthly payments but cannot afford to make up the payments missed during forbearance, even on a repayment plan. Additionally, if you do not want to permanently modify your loan terms, you may opt for deferment.
You may have to pay the deferred payments if you sell or transfer your property or refinance the loan.
Forbearance may be right for you if you are experiencing short-term financial hardship; for example, from job loss or disability, and cannot afford your monthly mortgage payments. You may have to provide proof that you're experiencing the hardship.
If your ability to pay has been affected by COVID-19, under the federal CARES Act, you can request forbearance without having to provide documentation.
If your loan is backed by the Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA), the U.S. Department of Agriculture (USDA), or the U.S. Department of Veterans Affairs (VA), you must have requested an initial forbearance by Sept 30, 2021. If your loan is backed by Fannie Mae or Freddie Mac, there is not currently a deadline for requesting initial forbearance.
Consumers with federally backed mortgages will not be required to make a lump-sum payment at the end of forbearance stemming from COVID-19 hardship. Instead, these borrowers are eligible to defer up to 12 months of paused payments.
The Bottom Line
Forbearance provides temporary payment relief to homeowners who are experiencing hardship. At the end of the forbearance payments, paused monthly payments may be due in full. At that time, borrowers may consider deferment to postpone the lump-sum payment until the end of the loan period. This article is for informational purposes only; look at the options in relation to your particular situation to decide what’s best for you.
Frequently Asked Questions (FAQs)
How do you get forbearance or deferment on your loan?
Talk to your loan servicer if you're experiencing financial hardship and need temporary relief from your monthly payments. If you're approved for forbearance, make sure to contact your loan servicer at least 30 days before the end of the forbearance period is near to discuss options for making up forbearance. These options may include deferment, full repayment, a short-term repayment plan, or loan modification.
How long do you have to make up for forbearance on a mortgage?
Unless you make other arrangements, your suspended payments are due at the end of the forbearance period. Failing to pay or to enroll in a repayment option could lead to missed payments, damage to your credit score, mortgage default, and foreclosure. Your loan servicer should contact you 30 days before forbearance ends to discuss making up the forbearance on your mortgage. Some servicers may make your payment options available from your online account.
How does mortgage deferment affect your credit score?
Ask your loan servicer to confirm how your account status and monthly payments will be reported to the credit bureaus. As long as your account reflects a "current" status and you resume making monthly payments on time, your credit score won't be negatively impacted.