What is Mortgage Forbearance?
Mortgage forbearance is a term that describes what is essentially a temporary pause in your monthly mortgage payments. People request mortgage forbearance for a wide range of reasons, including if they’re going through some type of financial hardship due to the loss of a job or if they’ve incurred unexpected expenses related to a natural disaster or even a medical issue.
The total length of the pause in payments during mortgage forbearance will largely depend on the reason why you requested it in the first place. This is something that will be decided when you speak to your loan provider about your situation.
The key thing to understand, however, is that once the forbearance period is over you’ll have to pay back any payments that you missed during this time. This is why you should continue to pay whatever you can – even if they’re partial payments – during this period.
What is Mortgage Deferment?
Mortgage deferment, on the other hand, is a way that you can deal with past payments after the forbearance period has ended.
As a part of the deferral process, you’ll take the total number of payments that you didn’t make during forbearance and add them onto the end of your loan. So it’s not that you aren’t making the payments – it’s just that you won’t be making them right now.
It’s also important to note that the burden falls on the homeowner to let the loan provider know exactly when they’re capable of continuing on with their regular payments at some point in the future.
How to Qualify for Forbearance
While qualifying for mortgage forbearance isn’t necessarily difficult, it will require you to share with your lender some evidence of the hardship you are currently experiencing. Most providers do this by way of an application for assistance, which is exactly what it sounds like. You’ll be asked to provide any documentation that you can regarding your current income, your assets and any other expenses you have like bills. This is also when you’ll have the chance to describe the exact nature of your current situation in more detail, outlining exactly why you need help.
This is something that has been especially common over the last year, given everything going on in the world right now with the still-ongoing COVID-19 pandemic. As a part of the CARES Act, anyone who was negatively impacted by COVID-19 is able to request mortgage forbearance for up to one year in six month increments.
To qualify, all you need to do is show exactly how you’ve been impacted by the pandemic. Maybe you suddenly have to provide care for a friend or family member with a severe illness. Perhaps you have been out of work due to a prolonged local lockdown order in your area. You may have even gotten the virus yourself. Regardless, all of these are valid reasons for requesting mortgage forbearance under the CARES Act.
The Effects of Forbearance or Deferment on your Credit Score
The most important thing to understand about all of this within the context of your credit score is that deferment is simply a type of payment option that is available to you once you leave the mortgage forbearance period. To that end, it’s really no different than if you had signed up for a repayment plan in which part of your past-due total gets added onto your monthly mortgage payments moving forward.
However, the thing that does have the potential to impact your credit is the process of getting approved for the mortgage forbearance in the first place. The exact reason why you requested the forbearance will dictate whether your credit is negatively affected, so you should always speak directly with a representative from your loan company to find out more information.
Likewise, having a mortgage forbearance in the past will stay on your credit report for a number of years moving forward. If it isn’t already resolved, you may have to wait longer periods before you can apply for certain types of loans. It may also impact your ability to refinance your home until those past payments have been taken care of.
If you’d like to find out more information about the differences between mortgage forbearance and mortgage deferment, or if you just have any additional questions you’d like to discuss with someone in a bit more detail, please don’t delay – contact us today.