Due to financial restrains as a result of the COVID-19 pandemic, there are mortgage relief options being introduced to homeowners. What exactly are these options and how do they differ from one another?

Here, we will talk about the two most common mortgage relief options – mortgage deferment and mortgage forbearance.

The similarities

Both tactics allow the homeowner to skip monthly payments for a temporary period of time. This period of time is determined by your lender, but the homeowner is able to suggest a length of time to see if it is something their lender may agree to.

However, depending on the terms your lender sets, things start to look different towards the end of that period.

Mortgage deferment

When your mortgage is in deferment, it does not gain interest. In deferment, you can pay back your missed monthly payments after the deferment period, or more commonly, tacked onto the end of your loan, extending your loan term.

Keep in mind that because of these more ideal conditions, it may be harder to arrange a deferment plan with your lender.

Mortgage forbearance

Typically, at the end of the payment “pause” period, those missed payments will be due as a lump sum. Some lenders may work with the borrower on a payment plan, but this is more commonly seen with mortgage deferment rather than forbearance.

Additionally, your loan still gains interest in forbearance. And in some cases, the terms may include that the loan be rewritten at the end of the forbearance period.

Other options

Depending on the type of loan you have, you may not qualify for a deferment or forbearance. Reach out to your lender directly to discuss your options. Come up with an action plan, and remember to ask these questions:

  • What relief options are available?
  • Will interest continue being calculated during the length of time I am not paying?
  • Will there be any fees?
  • How will it be reported to the credit bureaus?
  • Do I still need to pay for my escrow to cover taxes, insurance, and mortgage insurance?

During this time, most lenders are willing to work with borrowers in any way they can. In addition to or in place of deferment and forbearance, some lenders may offer reduced payment plans, as well as other options.

It is important, to keep in mind that if you are able to afford your monthly payments, to continue paying your loan as usual. This will help to avoid any unfavorable roadblocks in the future and will help pay your loan off sooner rather than later. Remember, nothing is really ever free.