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For homeowners facing tough times, it’s possible to postpone monthly payments and still keep your house through a process known as deferment. Deferring your mortgage payments is not the same as entering into a forbearance plan, though the two options are used interchangeably.
What is mortgage deferment?
Mortgage deferment is one option to handle repaying the payments you skip while your mortgage is in forbearance. It refers to an agreement between the lender and the borrower to add the overdue payments to the end of the loan term. This amount becomes payable — often in a lump sum — once the loan term ends, when you sell your home or if you choose to refinance to another mortgage. You should also know that the amount owed will not accrue interest.
Mortgage forbearance vs. deferment
Forbearance is one of the most common means of relief for homeowners facing a short-term obstacle to paying their mortgage. When you put your mortgage into forbearance, you temporarily stop making monthly payments (or make lower payments) while you sort out whatever hardship has prevented you from paying. Mortgage payments are typically suspended for three to six months, but the time could be longer or shorter depending on your financial situation.
When the forbearance period ends, there are a few ways borrowers can repay the missed amount, one of which includes deferment.
You’ll need to consult with your lender or servicer to arrange for forbearance and see if you qualify for deferment. Don’t stop making payments without establishing a relief and repayment plan, in writing, with your servicer. If you stop making payments without an agreed-to plan, your lender could initiate the foreclosure process.
Learn more about mortgage forbearance.
How to qualify for mortgage deferment
If you’re interested in deferring payments after forbearance ends, consult with your servicer early on. Depending on your situation, you might not automatically qualify for this type of repayment structure, or your servicer might limit how many payments you can defer.
Does deferment or forbearance hurt your credit?
In most cases, forbearance won’t count as a strike on your credit report; your lender or servicer will simply report the loan as current. Your repayment plan (deferment or otherwise) shouldn’t impact your credit, either, provided you repay on time.
Before agreeing to forbearance or any other form of relief, confirm with your servicer how the arrangement might affect your credit, and make sure you understand what you’re responsible for paying and when.
How to decide if deferment is right for you
A mortgage deferment after forbearance is generally a good course of action when you know your financial hardship is only temporary and you want to keep your home.
But you should be honest with yourself: Will you realistically be able to make up those missed payments in a lump sum when the due date comes? If it’s unlikely, or if your financial woes are more long term, consider alternatives to deferment. These can vary by your loan type but may include asking for a loan repayment plan or a loan modification, the latter of which permanently reduces your monthly payment.
“If you’re in a difficult financial situation and you’ve exhausted pandemic forbearance, a deferment might be the best option,” says Bankrate analyst Jeff Ostrowski. “Homeowners struggling to pay the mortgage also want to consider selling. Home values in many areas are at or near record highs, and selling your home can give you a fresh start.”
A mortgage deferment can provide much-needed financial relief when you exit forbearance and start getting your finances back on track. But you need to be sure you’ll be able to repay any deferred payments in full when it comes due. Before moving forward, consult with your mortgage provider to decide if deferment is best or if you should explore other forbearance repayment options.