Mortgage relief options such as mortgage forbearance and mortgage deferment are becoming readily available to those in need as a result of the COVID-19 pandemic. But what do these terms really mean?
Mortgage deferment and mortgage forbearance are not the same, although we are starting to see them being erroneously used interchangeably.
Both mortgage deferment and mortgage forbearance plans allow borrowers to temporarily stop making their monthly payments, but they differ in what happens next.
What we are seeing from most of the lenders right now are loan forbearance options. Many borrowers haven’t become past due on their mortgage yet, but, as the pandemic plays out, are rushing to delay these large payments until jobs and the economy stabilizes.
At the end of a forbearance period, the amount of payments missed are due in one lump sum. So, if your lender approved you for a 90 day forbearance plan, those payments are due at the end of the 90 days. Example: your mortgage payment each month is $2,000. At the end of 90 days, $6,000 of deferred payments would be due AS WELL AS your next $2,000 regular payment. That is a lot to have to come up in one lump sum.
On the other hand, loan deferment allows borrowers to repay the money over time or add it to the end of their loan period. This is typically seen in the form of loan modifications.
The bottom line is that nothing is free.
Lenders may choose to work with borrowers to structure a payment plan to make the repayment process more tolerable for the borrower.
You’re not getting free mortgage payments, they will have to be repaid. Interest will continue to accrue. What we don’t want to see is millions of Americans not able to repay the forbearance payments and go into real foreclosure after the pandemic settles.
Before signing up for a forbearance, deferment or loan modification plan, be sure to talk to your lender about the implications and the expectations of what you’re signing up for.
Lisa is a local real estate investor in Austin Texas.