Understanding the Difference Between Forbearance and Deferment

As of late, there has been a lot of discussion surrounding mortgage repayment. Should I or shouldn't I take advantage of what banks are offering as relief during COVID-19? And, these terms may be a bit scary. Which should I choose: Forbearance or Deferment? Which is better? My answer would be it depends!

For those financially impacted by COVID-19, you may be looking for ways to lessen the impact of the pandemic. It’s understandable given the extraordinary circumstances this pandemic has created in terms of job loss. 

The Federal and State governments have plans to help struggling homeowners. Financial institutions, mortgage servicers, and banks have stepped up with plans that offer some relief. In fact, this has alleviated some of the pressure for homeowners reeling from an unexpected furlough or job loss.  

To Pay or Not Pay

My advice is that if you CAN pay your mortgage, continue to PAY YOUR MORTGAGE! I recommend waiting to call your mortgage servicer until you are facing true hardship. If everyone decided to stop paying their mortgage all at once, then the impact to our overall economy would be devastating. It could then lead to a long financial depression that would take years to recover from. 

And, if you can’t pay your mortgage, then the ideal next step is to call your mortgage servicer right away. Tell them about your situation. See if you could pay a reduced amount for a period of time or find out what solutions are available to you. 

It's important you know that, if you do not contact your mortgage company, you place yourself at risk of foreclosure. It is not automatically assumed it is a COVID-19-related financial problem. And, you will see an impact to your credit if not reported.

Help is Here

Federal law has established some relief in the form of the Coronavirus Aid, Relief and Economic Security (CARES) Act to help homeowners in this situation. This will apply to anyone with a federally backed mortgage. Options include a Mortgage Moratorium and a right to Forbearance for those experiencing a hardship due to COVID-19.

Many may ask what does Forbearance mean and how does it work? Forbearance states that you may not have to pay your mortgage for the next three months. However, at the end of those three months, you owe the full amount as a lump sum payment. 

This does NOT forgive the amount of money you owe and does not necessarily stop any penalties or interest from accumulating. Also, it will not necessarily add this to the END of your 30-year mortgage. You just are expected to pay the amount in full in three months. For most Americans, this could be a deal breaker. 

Let's take a look at Deferment. When you speak to a lender and let them know you have a difficulty paying the mortgage, ask if they offer Deferment. This means that the three months that you do not pay are added to the end of your loan. You still may have fees and interest that you owe, but this is a better option for most homeowners.

Let’s Connect

For more information about how these relief options could affect you or your mortgage, please contact Liz at the Jones Realty Group or visit our website for more information at jonesrealtysocal.com.