- If you can’t afford your mortgage payments due to COVID-19 or another hardship, you actually have more options than you might think.
- Forbearance and deferment can help at-risk homeowners avoid foreclosure, but it’s important to know the difference between them.
- Contact the Ida Terbet Group for even more personalized advice regarding mortgages and real estate!
Understanding the Difference Between Forbearance and Deferment
The COVID-19 pandemic has wreaked havoc on the world in more ways than one. Unfortunately, many homeowners have found themselves behind on their mortgage payments due to financial instability, but that doesn’t mean foreclosure is the only option.
If you’ve been struggling with your mortgage and wish to stay in your home, it could be time to consider forbearance or deferment. Both can help you put off your payments until you’re back on your feet—however, you may have a few questions about which program is right for you.
Here are the main differences between mortgage forbearance and deferment that every homeowner should know. And if you have any questions, you can always reach out to our team for advice!
How to qualify for forbearance or deferment
Although forbearance and deferment might not be the same, they both have similar eligibility requirements. Most lenders will consider you for forbearance or deferment if…
- The mortgaged home is your primary residence.
- You cannot vacate the home.
- You have a certain expense-to-income ratio determined by the lender.
- Your monthly expenses are within a certain percentage of your monthly income determined by the lender.
These requirements can vary by lender, so be sure to contact them directly to understand all the options available to you. If you have a loan backed by the federal government, you may automatically qualify for these programs thanks to the CARES Act.
In general, forbearance is a good fit for homeowners who are or will be delinquent on their mortgages. If your lender agrees to a forbearance plan, they will reduce or temporarily stop requesting payments for a predetermined amount of time (usually a few months to a year).
The biggest difference between forbearance and deferment is when you’ll pay back your lender. When you sign a forbearance agreement, you may have to commit to a payment schedule upfront. Mortgage forbearance is viewed as a good temporary solution for emergency situations, such as the COVID-19 pandemic. If your problems are not related to a recent hardship, consider making different arrangements with your lender—they’re probably willing to negotiate with you.
Another big perk of forbearance is not having to pay interest. Lenders are also not obligated to report your forbearance to credit agencies, so it won’t necessarily reduce your credit score.
Mortgage deferment is similar to forbearance, but instead of agreeing to a payment plan, you’ll make up your deferred payments at the end of the term. This can be done through a lump sum or over time. Additionally, interest will still accrue even when your loan is in deferral.
Some lenders allow you to combine deferment and forbearance programs. In fact, deferral can sometimes be used to deal with back payments that arise after exiting forbearance.
Want to Learn More?
If you’re thinking about using one of these programs to put off your mortgage payments, the Ida Terbet Group is here to help! Be on the lookout for our next blog posts—we’ll dive even deeper into each program, as well as what you can do if you select the wrong one.
Our team is always on hand to help with your real estate needs, so just drop us a line if you ever have a question. We’d be happy to help you navigate the ins and outs of buying, selling, or owning a home!