Pressing Pause on Your Mortgage

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Mortgage Forbearance and Mortgage Deferment

Is There a Difference?

Many homeowners are in search of mortgage relief and are looking towards mortgage forbearance and mortgage deferment for help. What is the difference? We are seeing the terms being used interchangeably and depending on the lender, there can be subtle differences between the two terms. Both allow a borrower to temporarily skip monthly payments for a fixed period of time but the differences between the two strategies come at the end of that period.

What happens at the end of the mortgage forbearance period is the number of payments that you missed during that forbearance will be due in a lump sum. Sometimes, lenders will work with borrowers to structure a payment plan, instead of demanding a lump sum. Mortgage Deferment, particularly special programs that lenders have introduced during the pandemic will often allow customers to repay the money over time or to add it to the end of the loan period.

Contact Your Lender for Mortgage Relief

No matter what you call it, the point is to call your lender and let them know your situation and understand the options they offer. Don’t assume you can skip a payment.  If borrowers ask for help during this crisis, many lenders are allowing them to miss payments and not charge them late fees or penalties. But it’s important to understand what is happening with your loan during this time. Forbearance or deferment is temporarily hitting the pause button on your mortgage, but it does not necessarily pause the interest that is accruing, and it does mean that you're going to have to make that principal and interest payment at a later date.

Due to the current financial situation, the mortgage world is adjusting. Options that weren't on the table for borrowers a few months ago may be available now. Depending on your lender, the length of time that the forbearance could be extended and the options at the end of the term can be different. Borrowers in good standing prior to the current crisis may able to do a modification wherein any monthly payments missed now are simply tacked on to the end of the loan.

Some Questions to Ask

·       What relief options are available?
·       Is there a fee?
·       Will interest continue being calculated during the length of time I am not paying?
·       Does it impact my credit and how will it be reported to the credit bureaus?
·       Do I still need to pay for my escrow to cover taxes, insurance, and mortgage insurance?

Ideally, if you can pay your mortgage, pay it, and don’t ask for relief. It’s always better to make your monthly payment if you can.