One often hears about deferments and forbearances when dealing with student loan debt. However, housing and mortgage-related debt can also benefit from these options, if the lender offers.
These options are often spoken of in conjunction with one another, but there are some key differences to understand:
What is forbearance?
The lender agrees to lower one’s mortgage payment, or suspend it entirely for a specified amount of time.
A forbearance is granted before the borrower starts to fall behind; those who anticipate a period of financial hardship should contact their lender proactively to talk about a forbearance.
This can help borrowers avoid foreclosure before it even becomes a concern. The borrower may have to offer documentation to reassure the lender that s/he will eventually be able to get fully caught up on the loan.
After the forbearance period ends, the borrower will resume full monthly payments, and be expected to repay the unpaid portion of the loan using an agreed upon payment schedule.
This option is for those with temporary financial setbacks only. If you’re not sure that you’ll be returning to full financial health soon, then forbearance is not a good option for you.
What is deferment?
Like forbearance, a deferment allows the borrower to skip mortgage payments for a set period of time. There may be more options with regard to the unpaid interest during this time—it may be added to the loan principal, for example. The unpaid interest may sometimes be waived.
A deferment can often be granted along with another mortgage relief option; so if the lender is modifying the loan to a new payment amount, there may be a short deferment period before the new amount goes into effect.
Usually, a newly established mortgage will include a deferment of the first payment; if you sign a mortgage agreement in September, you might not have to make your first payment until November or December 1st.
Sometimes specific parts of the mortgage may be deferred; interest-only loans defer repayment of the principal potion of the debt for a set time.