Understanding Loan Forbearance and Deferment: A Roadmap Through Financial Hardship

Are you grappling with financial hardship, concerned about your ability to fulfill your monthly mortgage payments? The good news is that homeowners like you have viable alternatives to navigate these challenges. Amidst the financial upheaval that followed the onset of the COVID-19 pandemic in 2020, the US government unveiled a series of strategic measures, reinforcing the scope of forbearance and deferment options. When faced with such circumstances, you might find forbearance or deferment useful tools to temporarily suspend your mortgage payments.

Loan Forbearance Demystified

Should you secure forbearance, you have the potential to either minimize or delay your mortgage payments for a fixed, designated duration. Conventionally, forbearance extends up to six months. Still, if you continue to experience financial struggles after this period, you might qualify for a six-month extension of forbearance. It's crucial to remember that forbearance doesn't equate to loan forgiveness. At the culmination of your forbearance scheme, you'll need to pay back the entirety of your deferred payments in a single, lump-sum amount. Moreover, interest accumulates during forbearance—even though payments are on hold—which could be added to your loan balance, thereby raising the total cost of your home over time.

Deciphering Mortgage Deferment

The key distinction between forbearance and deferment lies in the repayment schedule of your postponed payments. Upon the conclusion of a deferment period, you're expected to pay back the deferred sum over a predetermined timeline. These repayments are integrated into your regular monthly mortgage payments, implying that you might have to pay more than you're accustomed to once the deferment period wraps up. If your home loan is backed by Fannie Mae or Freddie Mac, and you have faced financial hardship due to the pandemic, you may be eligible for an additional deferment option. This program allows you to:

• Delay up to 12 months of payments
• Resume your regular payments after deferment
• Add the total amount of your postponed payments to the end of your loan, payable when you clear your loan, opt to refinance, or sell your house
• Avoid accruing additional interest or late fees on your loan

Strategies for When Mortgage Payments are Daunting

Leveraging these mortgage relief alternatives necessitates proactive and well-informed decision-making. Initially, contact your mortgage servicer, discuss your predicament, and inquire about the options you have. Remember, each servicer follows their own policies and has different options. Commence this process the moment you perceive a potential financial obstacle looming; don't procrastinate until you're incapable of paying your mortgage. Prompt communication, preferably before missing any payments, opens up more choices and helps you evade penalties.

Prepare an approximation of your forecasted income and expenses before contacting your servicer, along with documentation supporting your financial hardship, such as a termination letter, pay cut notice, or furlough. Upon discussing your options with your servicer, independently verify those options and study the details before signing anything. Aim for a comprehensive understanding of your obligations and their due dates. Don't commit to anything until you have a full grasp of the terms and conditions of your forbearance or deferment plan. Be sure to understand components like interest penalties and their long-term effects on your mortgage before signing any agreement.

While it might seem tempting to cut down on monthly mortgage payments even without financial hardship, forbearance or deferment should only be considered a final resort. They aren't a free pass—they come with significant implications. Apart from the risk of having to pay more than anticipated each month or make lump-sum payments of several months' worth of mortgage, these relief options can affect your credit. While mortgage servicers usually don't report forbearances or deferments as late payments, they might annotate the status of your account on your report. Depending on how future lenders interpret these notations, a forbearance or deferment on your credit report could hinder your ability to refinance your home, purchase a new one, or acquire credit down the line.

To comprehend how forbearance or deferment might affect you, consider reaching out to one of our Mortgage Advisors at CrossCountry Mortgage today. We're always here to lend a helping hand!