A combination of deferment and a mortgage forbearance may be able to provide financial relief if you are having trouble paying your mortgage. It is important to remember that the terms can sometimes be confused.
Forbearance and Deferral are two different things. A forbearance can be used to reduce your mortgage payments or pausing them. While a deferment is a post-forbearance option that helps keep your mortgage current, a deferment could be used to put your mortgage on hold. Deferments are typically used to move any missed payments to the end so that they can be paid when your mortgage is paid off.
This article will discuss forbearance and deferment in mortgage lending, their impact on credit, and your future and present home financing options.
What is Mortgage Forbearance?
A temporary pause in your mortgage payments is called Mortgage Forbearance. Many homeowners who ask for forbearance are experiencing temporary financial hardship. For example, this could be the loss of a job or rebuilding costs, as well as other expenses due to a natural catastrophe, such as unexpected medical bills, etc.
While we will be talking about mortgage forbearance here, it is possible to receive forbearance for other debts.
The timeline for forbearance can differ depending on the reason. Talk to your servicer. The person to whom you pay your mortgage servicer payment is called a mortgage servicer. They’ll also maintain an escrow account for property tax and insurance payments. This could be the lender who provided your mortgage.
After the forbearance ends, you will have to make any outstanding payments. It is best to pay as much as you can during the period of forbearance. Some lenders give clients have the option to make partial or full payments through our Payment Center. Fortunately, there are many options available to you for repaying your debt once the forbearance period is over.
What is Mortgage Deferment?
Servicers often use terms such as deferral, mortgage deferment, or forbearance incorrectly. Deferral can be used to deal with any back payments that may arise after an individual has exited from forbearance.
Deferral, also known as a partial claim, is the process of making some payments you missed during your forbearance period and putting them aside to be paid at your loan’s end. Your servicer must agree to the deferral to obtain a deferment out of forbearance. It is also important to inform your servicer that you are capable of continuing with your regular payments. You may be eligible for a modification if you are unable to afford the original payment.
Deferral depends on your qualifications and the identity of your mortgage investor. The situation and the investor will determine how many payments can be deferred.
Repayment Options after Forbearance
The only option for repayment is deferment. There are many options available depending on your eligibility, the mortgage investor, and the type of forbearance that you apply for. Here are some examples:
- Repayment plan: Your monthly mortgage payment will be increased by a portion of the past-due amount.
- Deferment: This option is also known as partial claims. It allows you to set aside a portion of your past-due debt for payment in the event that your mortgage is paid off or when you sell or refinance your home.
- ModificationYour mortgage payment could be modified if you are eligible to include the past-due balance.
- ReinstatementThis option may not be for everyone. However, it is the fastest way to get your loan back on track. You have the option to pay the entire amount due when you exit the forbearance if you have the funds.
You may also have to pay additional interest or other fees depending on your agreement with your servicer. Be clear with your servicer about the terms of the agreement.
Qualifying for Forbearance
You must show proof of hardship to be eligible for forbearance in most cases. These rules may be modified in certain cases, such as the one below. The following rules generally apply:
The servicer will ask you to fill out a request for assistance. You may need to submit documentation about your income, assets, and any bills or expense evidence as part of the application. The application will also allow you to explain the hardship and need for assistance.
Your servicer will do all they can to keep you in your home if you are experiencing financial difficulties.
Mortgage Forbearances and COVID-19
COVID-19 made the situation more widespread. It presented policymakers with many challenges. The CARES Act allows those affected by COVID-19 to request mortgage assistance. This can be in the form up of a year-long mortgage payment forbearance in six-month increments. Some lenders renew these forbearances every 3 months to provide you with additional flexibility.
To be eligible, you must attest to having been affected by COVID-19. This could be due to a job stoppage, the virus, or loss of income from caring for someone with the disease.
Depending on your circumstances, you might be eligible for forbearance for up to six months beyond what is provided by the CARES Act. To find out what your options are, check in with your lender.
Some will grant a 3-month initial forbearance. We’ll contact you to confirm your continued forbearance before the time period expires.
Finally, because of the uncertain economy and current economic situation, some people choose to file for forgiveness without knowing if they will need it. To ensure that you are able to get a loan in the near term, inform your Home Loan Expert of your forbearance. They can help you understand your options and avoid any surprises.
Are Deferments or Forbearances a Bad Idea for Credit?
How a forbearance will affect your credit depends on your circumstances and the type of forgiveness you are granted. Talk to your servicer.
You should also be aware of the fact that forbearance in your history, regardless of whether it has been resolved, may lead to waiting periods before applying for certain types of loans to refinance or purchase a home.
Which option is best for you?
Deferment can be a possible outcome of forbearance. The real question isn’t whether forbearance or deferment is best for you but which repayment options you have. The repayment options available to you will be determined by your servicer.
The bottom line
Forbearance means that you can temporarily suspend your monthly mortgage payments by working with your mortgage servicer. This is usually done by servicers in response to financial hardships such as job loss, unexpected medical events, or other circumstances. They will typically request documentation about income, assets, and expenses. COVID-19 requests are often processed quickly.
Deferment can be used to repay past-due amounts after you have ended forbearance. A deferment allows you to set aside some past-due payments for repayment at the end. If it is financially feasible, you can also choose to modify your repayment plan or pay off the entire amount immediately.
There are many types of forbearance, each with its own effects on your credit and future ability to qualify for a mortgage. Talking to your servicer is the best way to discuss both the forbearance and your repayment options is the best thing.