Missing a few mortgage payments does not mean you will automatically lose your home, but you should consider steps to get back on track with your mortgage. Fortunately, many lenders understand their clients sometimes run into financial problems and offer forbearance programs to help them out.
You may have heard of mortgage deferment. Sometimes people use this term and forbearance interchangeably, but deferment is actually distinguishable from forbearance.
How forbearance and deferment contrast
Forbearance allows homeowners to temporarily pause or reduce their monthly mortgage payments. During the forbearance period, homeowners do not have to produce their regular monthly payments. However, the homeowner must eventually repay these missed payments, perhaps with a lump-sum payment after forbearance ends.
Mortgage deferment is a different option that allows homeowners to postpone paying the missed payments from their forbearance period. Rather than having to provide a lump-sum payment or increase their monthly payments, deferment enables homeowners to wait until the end of the loan term to pay back the amounts.
Deferment adds the missed payments to the end of the loan. Homeowners can choose to pay them off when they sell the home or refinance the mortgage. This may make it easier to catch up on missed payments after the forbearance period ends.
When deferment may work better than forbearance
The financial flexibility of forbearance can be a great help to struggling homeowners. However, forbearance generally includes the requirement of a lump sum payment or higher monthly payments to make up for the missed amounts. This can be challenging if the homeowner has not been able to improve financially.
By contrast, mortgage deferment allows homeowners to postpone providing the missed payments until the end of the loan term. However, this option also adds to your debt period, as you may need more time to completely pay off your home.
Neither forbearance nor deferment is inherently worse than the other. Each option suits itself to specific circumstances. A look at your financial situation may help you understand if you need more time to stagger your home payments with deferment so you do not sink deeper into financial trouble.
