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What's the Difference Between Forbearance and Deferment?

Many people who are concerned about making their mortgage payments during the COVID-19 crisis were relieved to hear that their lender might be able to help. Although this is true, make sure you understand the terms of your agreement. It's not free money or a free mortgage payment.

Here's a quick overview of some of the options:

  • A mortgage forbearance allows borrowers to temporarily stop making their monthly payments, but be careful! At the end of a forbearance period, generally the amount of payments that were missed are due in a lump sum or balloon payment. For example, if the lender gave you 6 months forbearance on a $2000 monthly mortgage payment, they wouldn't charge you late fees but you would need to pay 6 months X $2000 - $12,000 at the end of the agreement. (A note- some lenders may choose to work with borrowers to structure a payment plan so make sure to ask)

  • A mortgage deferment allows the borrower to repay the money over time or add it to the end of their loan period

  • A loan modification restructures the current loan to bring down loan payments. It can include some of the following: an interest rate reductionin certain cases, a forgiveness of a portion of principal, extension of the maturity of the debt, spreading the past due amount over the remaining term or a deferment of a portion of the outstanding debt

Explore all your options and make sure you fully understand what your lender can do for you. Some lenders are doing loan modifications, too.

Source: "Mortgage Deferment and Mortgage Forbearance—Is There a Difference?”® (April 7, 2020)

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