The difference between Mortgage Deferment and Forbearance.

Randall C. Becker
Randall C. Becker
Published on April 16, 2020

Some homeowners are struggling financially due to the COVID-19 pandemic and are looking for relief. They are looking toward the recently passed CARES act for help, but they must understand two very important terms that are used: deferment and forbearance.
Many banks and servicing companies are offering ways to suspend payments during these financial hard times but you really need to know what you’re signing on too. Deferment and forbearance are seen as a short term quick fix but at what cost? Are these options hurting you more in the long run than helping in the present.
Are people getting the full information on the impact of their credit score? Deferment opposed to forbearance could mean the difference between qualifying for an automobile loan or a mortgage down the road. Deferring a loan means that your loan is simply frozen for the specified amount of time and the payments pick up at the end of the specified time as normal. The missed payments are put on the end of the loan and the loan is just extended for that period of time. Find out all details though, what if you pay your mortgage off early or sell, how will the interest be calculated on those missed payments? Will interest just be added for the amount of time the payments are missed or will they charge you what the interest on those payments will be for the life of what the loan should have been?
When it comes to forbearance usually what happens is it will report as default on your credit and once the term has been reached all payments are due. So let’s say it is a 90 day deferment on day 91 will you have the mortgage payment for 4 months available? What will happen at that time if you don’t, can you pursue a loan modification? We saw the success of that 10 years ago and that was not so great, will they start foreclosure and adding more expenses to your payoff?
The most important thing right now is to know and understand your options. Your decisions now could make all the difference in the world in the near future. Speak with your servicing company, get advice from the lender that sold you the loan, call your realtor to get the value of your home to see how much equity your basing your decisions on. Remember knowledge is the base to make this difficult situation work out best for you and your family.

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