Forbearance and Deferment: What’s the Difference?
Published on 6/24/2020
As a result of the Coronavirus, many consumers were relieved to learn about mortgage forbearance and deferment options available through the CARES Act. News media and TV ads peppered these terms throughout their messages, using them interchangeably. It is important to know that though both provide temporary payment relief, they differ in what happens afterwards. Here’s how:
A forbearance is a temporary suspension of your monthly payment with the understanding that all suspended payments along with the current month's payment are due in full at the end of the forbearance term.
In the example below utilizing a three month deferment, if the borrower defers the May, June, and July payments, in the month of August, the borrower would have a total mortgage payment due of $4,800 -- $1,200 for each month deferred, plus August's regularly scheduled payment.
Although there may be other options available at the end of the forbearance period based upon the lender and insurer’s guidelines, the borrower could be on the hook for the total amount at the end of the three-month period.
On the other hand, a deferment suspends the principal and interest portion of your mortgage payments for a specific period of time and adds it to the end of the loan, allowing you to pay over time.
Under the CARES Act, there are specific eligibility requirements for federally-backed loans. Discuss your situation with your mortgage lender to understand what options are available. The bottom line is that your mortgage payments will need to be paid back to your mortgage lender at some point. So, weigh your decision carefully whether it is best for you to pay now or later.