Mortgage Forbearance Vs. Deferment: The Most Important Ways They Differ
Kevin Graham6-minute read
October 13, 2022
If you’re experiencing trouble making your mortgage payment, a mortgage forbearance along with a deferment may provide much-needed relief from a financial hardship. However, it’s important to realize that although the terms are sometimes confused for each other, they don’t mean the same thing.
The big difference between forbearance and deferral boils down to this: A forbearance is the act of pausing or reducing your mortgage payment while a deferment may be a post-forbearance option to help take your mortgage current. A deferment typically moves any missed payments to the end of your loan to be paid when you pay off your mortgage.
This article will take a look at forbearance vs. deferment in the mortgage space, how it affects your credit as well as your present and future home financing options – and if either is right for you.
What Is Mortgage Forbearance?
Mortgage forbearance is a temporary pause in your payments on your mortgage. Homeowners who request forbearance are often experiencing some sort of financial hardship that is temporary in nature. This might be the loss of a job, rebuilding and other expenses related to a natural disaster or an unexpected medical expense.
If you’ve previously been on biweekly payments, any options you have upon exiting forbearance are only designed to bring your loan current. In order to take advantage of biweekly payments, you need to be a month ahead to start with because you’re only making half a payment on the initial due date.
Although we’ll be discussing mortgage forbearance in this article, you can also receive forbearance from other debts like student loans.
Forbearance timelines can vary depending on the reason for the forbearance, so speak with your loan servicer. A mortgage servicer is whoever you make your payment to. If you have an escrow account to spread out property tax and insurance payments, they’ll maintain this as well. This may or may not be the lender with whom you did your mortgage.
Do You Have To Pay Back Forbearance?
Once the forbearance is over, you have to pay back any missed payments, so it’s helpful to pay what you can during the forbearance. Rocket Mortgage® clients can make full or partial payments with the custom payment option in our Payment Center. When the forbearance is over, you have several options for dealing with repayment.
What Is Mortgage Deferment?
Forbearance and mortgage deferment or deferral are terms that are often misused, sometimes even by servicers. However, deferral is actually an option for dealing with back payments that arise after someone has exited forbearance.
Also referred to as a partial claim, deferral involves taking a number of payments that you may have missed during your forbearance and setting them aside to be paid at the end of your loan.
What Qualifies You For A Deferment?
Whether deferral is an option for you depends on who your mortgage investor is, how many payments have been missed, and your ability to resume making your regular monthly mortgage payment.
If you can no longer afford your original payment, you may have to look into other options, such as a loan modification, or the possibility of selling your home if long term affordability is ultimately not feasible.
Repayment Options After Forbearance
Deferment is just one repayment option. Your options may vary depending on what you qualify for, your mortgage investor and the type of forbearance you apply for. Here are a few common scenarios:
- Repayment plan: Part of your past-due amount is added to your monthly mortgage payment.
- Deferment: Also referred to as a partial claim, under this option, a portion or all of your past-due balance is set aside for payment when your mortgage is paid off, you refinance or sell the home.
- Modification: If you qualify, your mortgage rate and/or term may be modified in order to include your past-due balance.
- Reinstatement: We know this option isn't for everyone, but if able, this is the fastest way to get your mortgage back on track. You can pay back the full amount due upon exiting the forbearance if you have the funds.
Also, depending on the terms of your forbearance with your servicer, you may or may not have to pay more in interest and other fees due to paused payments. Please be clear with your servicer as to what the agreement is.
Qualifying For Forbearance
To qualify for forbearance, in most cases, you have to share with your mortgage servicer evidence of hardship. In some instances, such as forbearances requested after natural disasters, these rules are modified. However, in general, the following rules apply:
Your servicer will have you share information about your struggles. Rocket Mortgage clients can fill out an Application for Success. As part of that application, you may be asked to provide documentation around income and assets and any bills or other expense evidence. You’ll also be given the opportunity to describe the nature of the hardship and the need for help.
If you’re experiencing financial trouble, your servicer will want to do everything they can to help keep you in your home.
Can Forbearances Or Deferments Hurt Your Credit?
Whether a forbearance affects your credit and how your credit is impacted depends on your situation and the type of forbearance you’re approved for. The best thing to do is to talk to your servicer.
Beyond the actual impact on your credit score, you should be aware that having a forbearance in your past, whether or not it’s already been resolved may or may not lead to waiting periods before you can apply for certain types of loans to purchase or refinance a home.
Which Option Is Best For You?
Since deferment is one possible outcome at the end of a forbearance, the real question is not whether deferment or forbearance is best for you, but rather which repayment options are available. Your servicer will determine what you qualify for in terms of repayment alternatives.
The Bottom Line
It’s important to remember that lenders may offer forbearance and deferral options when borrowers experience financial hardships. Forbearance is when you temporarily pause your monthly mortgage payments, whereas a deferment is one possible option for repaying past-due amounts when exiting forbearance. With a deferment, past-due monthly payments are set aside to be paid by the end of the loan.
There are various types of forbearance with different effects on credit and your future mortgage qualification ability. In talking about both the forbearance itself and your repayment options, the best thing to do is speak with your servicer.
Are you a Rocket Mortgage client concerned about making your mortgage payment? Check out our assistance resources online.
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