What’s the Difference Between Mortgage Deferment and Forbearance?
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.
Interest Accrual
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.
Repayment
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. 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.
Other Information
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.
