Deferment vs. Forbearance

Forbearance vs. Deferment: Key Differences in Mortgage Relief

When facing financial challenges, homeowners may encounter terms like forbearance and deferment as potential solutions for mortgage relief. While these options are often mentioned together, they have distinct purposes and processes. Understanding their differences can help you make informed decisions to protect your home and financial stability.

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What Is Forbearance?

Forbearance allows a borrower to temporarily reduce or suspend mortgage payments for a specified period, helping them avoid foreclosure during short-term financial hardships.

• When to Seek Forbearance:
  Contact your lender proactively if you anticipate a period of financial difficulty. Forbearance is typically granted before payments are missed.
• How It Works:
  During forbearance, your lender may agree to suspend payments or reduce them. Once the forbearance period ends, you’ll resume full monthly payments and follow an agreed repayment schedule for any unpaid amounts.
• Who Should Consider It?
  Forbearance is best for borrowers who expect to recover financially in the near future. If you’re unsure about your ability to catch up on payments, other options may be more suitable.

Learn more about mortgage forbearance from the Consumer Financial Protection Bureau.

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What Is Deferment?

Deferment allows borrowers to temporarily pause mortgage payments, similar to forbearance, but with notable differences:

• How Deferment Works:
  During a deferment period, missed payments may be added to the loan principal or waived altogether, depending on the lender’s terms. In some cases, unpaid interest may also be deferred.
• When It’s Used:
  • Deferment is often combined with other relief options, such as loan modifications.
  • Many newly established mortgages include an initial deferment period, where the first payment isn’t due until 1-2 months after signing the loan agreement.
• Who Should Consider It?
  Deferment is helpful for borrowers seeking additional flexibility during temporary financial setbacks. This option may also apply to interest-only loans, which defer principal repayment for a specified period.

Visit HUD’s Mortgage Assistance Guide to explore available options and determine if deferment is right for you.

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Key Differences Between Forbearance and Deferment

FeatureForbearanceDefermentPayment SuspensionTemporarily reduces or suspends payments.Temporarily pauses payments entirely.Unpaid InterestMust be repaid during repayment period.May be added to the loan principal or waived.Application TimingGranted before missed payments.Often part of loan modifications or new mortgages.

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Both options are designed for short-term relief but differ in their repayment terms and application scenarios. For more information, check out Making Home Affordable.

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Things to Consider Before Applying

1. Assess Your Financial Situation:
   Forbearance and deferment are temporary solutions. Ensure you have a realistic plan for resuming payments when the relief period ends.
2. Document Your Hardship:
   Lenders may require proof of financial hardship, such as pay stubs, tax returns, or termination notices.
3. Understand the Terms:
   Clarify repayment terms for any unpaid amounts, and ask your lender about alternatives if you’re unsure of your ability to recover financially.

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Become a Successful Homeowner

Understanding mortgage relief options is just one part of maintaining homeownership. If you’re planning to buy a home, consider taking advantage of pre-purchase counseling and homebuyer education programs. These resources help you navigate the complexities of homeownership and set you up for long-term success.

Schedule your free housing counseling appointment or call 800-431-8157 to speak with our certified housing counselors today.