Mortgage Deferment Vs. Forbearance | Bankrate

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For homeowners facing tough times, it’s possible to postpone monthly payments and still keep your house through a process known as deferment. Deferring your mortgage payments is not the same as entering into a forbearance plan, though the two options are sometimes incorrectly used interchangeably.

What is mortgage deferment?

Mortgage deferment is a mortgage relief option that lets you add overdue payments to the end of your loan term. Some lenders will offer deferment as an option to keep your loan current while you’re in mortgage forbearance.

You’ll need to repay the missed amount — typically in a lump-sum balloon payment — when you finish paying off your loan, sell your house or refinance to another mortgage. Interest does not accrue on these postponed payments.

Mortgage forbearance vs. deferment

Mortgage forbearance, on the other hand, is a type of hardship relief that allows you to pause or reduce your payments temporarily while you deal with a short-term financial setback (such as an illness or job loss).

Mortgage payments are typically suspended for three to six months, but the time could be longer or shorter depending on your financial situation. During forbearance, interest still accrues on the missed payments.

When the forbearance period ends, you’ll need to plan to make up the payments you missed, and deferment is one option that might be available to you. But before you can defer mortgage payments, your servicer will determine if you’re eligible based on how many payments you’ve missed and your potential to resume making payments.

Let’s take a closer look at how mortgage deferment and forbearance compare. Say you worked at the same company for 15 years and never missed a mortgage payment — until you unexpectedly lose your job. When you realize you can’t make your next payment, you apply for forbearance, and your lender allows you to pause payments for three months while you look for a new job. To make up the missed payments, your lender lets you defer them. This means you’ll make three months’ worth of loan payments at the end of your 30-year term.

When can you defer a mortgage payment?

If your lender allows it, there are a couple of situations when you can defer your mortgage payments. These include:

• When you’re experiencing a temporary financial hardship that prevents you from making your mortgage payments, such as a natural disaster, job loss, illness or injury
• When you’re in forbearance and need a way to make up your missed or reduced payments

Learn more: What is mortgage recasting?

How to qualify for mortgage deferment

How can you defer a mortgage payment (or payments) after forbearance ends? Here are the steps to take:

1. Consult with your lender or loan servicer as soon as possible. This communication will tell you if the lender or servicer offers deferment and, if so, what requirements you must meet to qualify.
2. Apply for deferment. Depending on the lender or servicer, there may be an application to complete to begin the deferment process.
3. Wait for approval, but start planning ahead. While you wait to find out if your deferment request is approved, continue making normal payments. Also, start thinking about how you’ll repay the deferred payments when they come due.

How to decide if deferment is right for you

A mortgage deferment after forbearance may be a good option if you know your financial hardship is temporary and you want to keep your home.

Here are some things to consider as you determine if deferment is the right option for you:

• Do you have proof of financial hardship? Most lenders will require proof.
• Will you be able to make up those deferred mortgage payments in a lump sum when the due date comes? If it’s unlikely, or if your financial woes are more long term, consider alternatives to deferment, such as a loan modification.

“If you’re in a difficult financial situation and you’ve exhausted forbearance, a deferment might be the best option,” says Jeff Ostrowski, principal writer at Bankrate. “Homeowners struggling to pay the mortgage also want to consider selling. Home values in many areas are at or near record highs, and selling your home can give you a fresh start.”

Compare: Current mortgage rates today

Mortgage relief FAQ

• Does deferment or forbearance hurt your credit?
  

  In most cases, forbearance won’t count as a strike on your credit report; your lender or servicer will simply report the loan as current. Your repayment plan (deferment or otherwise) shouldn’t impact your credit, either, provided you repay on time. Before agreeing to forbearance or any other form of relief, confirm with your servicer how the arrangement might affect your credit, and make sure you understand what you’re responsible for paying and when.

• Will mortgage companies defer payments for all borrowers? 
  

  No. If you don’t qualify for this type of repayment after forbearance, you can look into alternative repayment options, depending on your loan type. For USDA and VA loans, you may be able to start a repayment plan or loan modification, which gives you a longer loan term. With FHA loans, loan modification is another repayment option.

• What are other repayment options after forbearance?
  

  For conventional loans, your options may include reinstatement (where you repay all of your missed payments when your forbearance ends) and a repayment plan (where you can pay it back in installments). You might also be able to refinance your loan or apply for the Flex Modification program (FMP) to extend your loan term or lower your interest rate.