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If you're struggling to pay your mortgage loan, it's important to know that you have options to help you avoid losing your home. Both mortgage forbearance and deferment can provide some much-needed relief to homeowners in need.
To help you understand your options, we'll take a look at mortgage forbearance vs. deferment, explain the pros and cons of each, and show you how both of these mortgage relief programs can help keep you from falling behind on your mortgage payments.
What is mortgage forbearance?
Mortgage forbearance is an arrangement with a lender. It is a form of mortgage relief that allows you to temporarily pause payments on your home loan without risking foreclosure. You also won't face late charges during this time. These payments aren't forgiven, and you will have to repay the missed payments when forbearance ends. But for the time being, you don't have to make mortgage payments.
Most lenders will offer a forbearance plan for struggling borrowers who can't afford their bills. The federal government also mandated lenders make forbearance available during the COVID-19 pandemic. This mandate applies to federally-backed or sponsored loans. Forbearance is not automatic and must be requested -- even during the pandemic.
What is mortgage deferment?
The term mortgage deferment is sometimes used interchangeably with mortgage forbearance. However, it isn't the same. Forbearance means your lender has allowed you to pause loan payments. Deferment is an option for catching up on missed payments while your loan is in forbearance.
When you pause payments under forbearance, you must make them up. Sometimes, you're required to make a lump-sum payment at the end of the forbearance period. On the other hand, deferment allows you to wait to catch up on these back payments.
With mortgage deferment, you'll make up the missed payments at the end of your loan repayment period. You can also choose to pay it back when you sell the home or after refinancing your mortgage.
Mortgage forbearance vs. deferment: What's the difference?
You don't have to choose between mortgage forbearance vs. deferment. They can go hand in hand. But they are not the same.
- Forbearance is a method of dealing with temporary financial hardship. You pause mortgage payments because you are facing economic difficulties. This may result from the COVID-19 pandemic, a job loss, or illness.
- Deferment is a method of making up back payments. Once your forbearance period ends, you can opt to defer making back payments. You do this instead of making a lump-sum payment to catch up on the missed payments during forbearance.
Also, you can choose forbearance without deferred payments. This would pause payments during a time of hardship until forbearance ends, when you would make a lump-sum payment. Unfortunately, this option isn't available to those who cannot come up with a large sum of money immediately upon exiting forbearance.
Mortgage forbearance vs. deferment: pros & cons
There are pros and cons to consider when choosing mortgage forbearance or opting for deferment.
Mortgage forbearance pros and cons
The biggest advantages of mortgage forbearance include:
- Financial flexibility when you need it: Pausing mortgage payments could help you cover other necessities. You may find it easier to cover the cost of groceries and healthcare during tough times.
- Avoiding foreclosure: If you can't make mortgage payments, putting your loan into forbearance can help you avoid losing your home.
- Avoiding late fees: You typically will not incur late fees if your loan is in forbearance.
The biggest disadvantages include:
- You'll still owe the payments due: Forbearance doesn't erase your obligation to pay your mortgage loan. You have to pay more money later to make up for missed payments.
- Your credit score could be affected: Depending on the type of forbearance program, your mortgage lender may report your forbearance to credit reporting agencies. This could affect your credit score and ability to borrow in the future. Fortunately, if you do have a bad credit score and need options, help is out there. For more information, learn how to refinance with bad credit.
- You usually have to qualify: Although the government temporarily mandated forbearance for government-backed loans, not everyone qualifies. And when there is no pandemic-related government mandate, lenders can make their own decisions on forbearance.
Mortgage deferment pros & cons
The biggest advantages of mortgage deferment include:
- You won't have to immediately catch up on back payments after forbearance. Most people enter forbearance due to economic hardship. When faced with this hardship, it can be difficult to immediately make a large lump-sum payment when forbearance ends. Deferment allows you to put off making up missed payments during the deferment period.
- You have more flexibility in how to make payments. You may be able to wait until the end of your mortgage term to repay the missed payments. Or you could refinance to pay off what you owe.
The biggest disadvantages of mortgage deferment include the following:
- You're committing yourself to future financial obligations. You won't make up for missed payments until after the deferment period. You're obligating your future self to make payments.
- You'll be in debt for longer. If it takes you six months to make up for deferred payments after paying off the rest of your mortgage, you will be in debt for that much longer.
Mortgage forbearance vs. deferment: Which is right for me?
You don't have to choose between deferment and forbearance. If you are worried about missing mortgage payments, contact your lender ASAP. Ask about forbearance options. Forbearance is better than alternatives, such as foreclosure.
Once your forbearance period ends, explore all your options. You could make a lump-sum payment. Another option is agreeing to a payment plan, which would mean paying extra money on top of each monthly payment. You'd do that to make up for the missed payments while your loan was in forbearance. Or you could opt for deferment and make up missed payments later.
Alternatives to mortgage forbearance or deferment
Alternatives to forbearance include:
- Making payments on time if you're able.
- Requesting a mortgage loan modification. This would change the terms of your loan permanently if you qualify. This could involve reducing your mortgage interest rate. Or it could mean changing your loan payoff term.
- Refinancing. If you can refinance your mortgage to a new, more affordable loan, you may not need to pause payments.
Alternatives to deferment include:
- Making a lump-sum payment when forbearance ends for all of the payments you missed.
- Entering into a repayment plan where you tack a small amount onto each monthly payment to make up for payments missed while in forbearance.
- Refinancing to pay off your current loan, including the payments missed while you were in forbearance.
The alternatives available will depend on your credit score, your income, the options your lender makes available, and your overall financial situation.
Still have questions?
Here are some other questions we've answered:
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FAQs
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Mortgage forbearance pauses payments during times of financial hardship. Mortgage deferment is one option for how you will catch up on the back payments that built up while your loan was in forbearance.
You can request forbearance from your lender if you can't make mortgage payments. If approved, you will not have to make payments for a period of time. You won't be subject to late fees or risk foreclosure during your period of nonpayment. But you will still owe the money.
Deferment allows you to make up for the missed payments later. You'll pay them at the end of your mortgage or when you sell or refinance. It's an alternative to making a lump-sum payment. It's also an alternative to a repayment plan, which would involve adding extra money onto each monthly mortgage payment to make back payments.
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Neither forbearance nor deferment is better than the other. They serve different purposes. Forbearance helps you cope with financial hardship. It does so by allowing you to temporarily stop making mortgage payments. Deferment is a method of making up for those missed payments by paying them later instead of immediately when forbearance ends.
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You do not have to choose between mortgage forbearance or deferment. You can put your mortgage loan into forbearance to stop making payments temporarily. You will need to request forbearance from your lender.
Once forbearance ends, your lender may offer several options for making up for missed payments. This includes a repayment plan that temporarily increases payments to make up for those you missed. Or it could include an immediate lump-sum payment.
Deferment is another option. It allows you to make up the missed payments later rather than right after forbearance ends.
By deferring payment of the money you didn't pay during forbearance, you have more time to recover from your economic hardship. You don't immediately exit forbearance and have to pay a large sum of money or higher monthly mortgage costs.
Our Mortgages Expert
Christy Bieber is a full-time personal finance and legal writer with more than a decade of experience. She has a JD from UCLA as well as a degree in English, Media and Communications with a Certificate in Business Management from the University of Rochester. In addition to writing for The Ascent and The Motley Fool, her work has also been featured regularly on MSN Money, CNBC, and USA Today. She also ghost writes textbooks, serves as a subject matter expert for online course design, and is a former college instructor.
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