What’s the difference between forbearance and deferment?

If you are experiencing or expecting some sort of financial hardship, you can request a mortgage forbearance. Forbearance allows you to temporarily pause or reduce your monthly mortgage payment. Financial hardships that qualify a mortgage for forbearance can include job loss, natural disaster, or medical expenses. The CARES Act also allows forbearance for those impacted by the COVID-19 pandemic.

While in forbearance, your payments are paused for a predetermined amount of time—usually 2 to 12 months—but you will eventually have to repay past due payments when the forbearance period ends. Timelines and repayment terms are subject to an agreement between you and your mortgage servicer, also called a mortgage lender.  

Forbearance is only available to people who are experiencing a temporary financial setback, not to those who cannot make regular payments under their original agreement. If your monthly payments or interest rate are too high under normal circumstances, you should talk to your servicer about other options, such as income-driven repayment, which lowers your monthly payment over a longer time frame, or student loan refinancing.

Deferment, on the other hand, is one of several options for managing your mortgage payment after the forbearance period ends. Sometimes called a deferral or partial claim, mortgage deferment allows you to pay missed payments at the end of the loan, or until you refinance or sell the home. 

Other repayment options include: 

• Repayment plan: Part of the past-due amount is added to each monthly payment.

• Modification: For qualifying homeowners, the full mortgage payment can be modified to account for the past due amount if you can no longer afford the original amount.

• Pay in full: Pay the past-due amount in full after the forbearance period ends.

Your repayment options, including deferment, depend on your mortgage servicer and whether or not you qualify. Both parties—you and the servicer—have to agree to your repayment terms before entering the forbearance period.

In short, it can; however, forbearance is designed in favor of the homeowner so that a period of missed payments won’t do lasting damage to your credit score. Whether mortgage forbearance affects your credit will depend on how your mortgage servicer handles cases and how you plan to handle missed payments after the forbearance period ends.  

According to credit reporting company Experian, missed or underpaid mortgage payments are technically considered delinquent. This means that your servicer can report them to the credit bureaus; some choose to report these and others do not. If a servicer does report them, you won’t see a significant drop in your score considering your servicer pre-approved the forbearance. 

Other than your credit score, forbearance can also impact your eligibility or waiting periods when the time comes to refinance or purchase a new home. 

Despite potential short-term consequences, forbearance could be worth it in the long run. Failing to make a mortgage payment can lead to foreclosure on your home, which does far more damage to a credit score than forbearance.

To request forbearance, homeowners need evidence of temporary financial hardship. This can include documentation of loss or reduction of income, an expensive medical bill, or some other costly incident. 

Once approved, homeowners work with their mortgage servicers to construct a forbearance agreement, which typically includes: 

• Length of the forbearance period

• Amount of payment required during the forbearance period, if any

• Whether the servicer will report missed payments to credit bureaus

• Repayment terms

• If paused payments will accrue interest or fees during the forbearance period.

If you’re experiencing financial hardship, it can be a difficult decision to ask for help when it comes to mortgage payments. However, you should understand that it is very common, especially amidst widespread, trying circumstances. You should worry less about whether forbearance is right for you and more about what repayment plan works best for your situation. 

Once you’ve solidified your forbearance and repayment terms, it’s important that you do everything you can to stay on track. Try saving an emergency fund to help you prepare for unexpected expenses in the future.

Unlike mortgage forbearance and deferment, student loan deferment and student loan forbearance are quite similar. They both allow you to delay or reduce federal student loan payments, but they also have a key difference. 

When in deferment, federal loans, typically labeled as subsidized or Perkins loans, will not accrue interest. In forbearance, interest will accrue. Forbearance and deferment are often available for private student loans as well, though some lenders offer more limited options. 

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