Mortgage Deferral: What It Is and How It Helps Homeowners

Behind on your mortgage payments? A mortgage deferral could help you catch up.

If you qualify, a mortgage deferral moves your past-due payments to the end of your loan. Deferrals have pros and cons and aren’t right for everyone.

You’ll learn whether a mortgage deferral works for your situation. We’ll also cover other mortgage relief options available to struggling homeowners.

Understanding Mortgage Relief Options

Job loss, medical emergencies, and unexpected hardships make mortgage payments difficult. Two main options can provide relief: mortgage forbearance and mortgage deferrals.

Both give you breathing room to work out long-term solutions. The key is choosing the right option for your financial situation.

Mortgage Forbearance Explained

Mortgage forbearance reduces or postpones your payments temporarily. Your lender agrees to pause or lower payments for a set period.

During forbearance, interest still accrues on your loan. Your lender won’t pursue foreclosure during this period.

Most forbearance plans last three to six months. The Consumer Financial Protection Bureau provides additional guidance on forbearance options.

Getting a Mortgage Forbearance

You must contact your mortgage servicer directly to request forbearance. Your servicer’s contact information appears on your mortgage statement.

You’ll work together to create a forbearance plan. Your financial situation determines how you’ll repay the postponed payments.

Four repayment options exist after forbearance ends:

• Lump-sum repayment: Pay all missed payments at once when forbearance ends
• Payment plan: Add extra amounts to your regular monthly payments
• Loan modification: Extend your loan term or adjust your interest rate
• Payment deferral: Move missed payments to the end of your loan term

How Mortgage Deferral Works

Mortgage deferral helps when you’re already behind on payments. Forbearance is proactive, while deferral addresses existing missed payments.

Deferrals work best for temporary hardships with clear end dates. Maybe you faced a short layoff but now have steady income again.

A mortgage payment deferral makes your loan current immediately. You move missed payments to the end of your loan term.

You won’t need to make a large lump-sum payment. The deferred amount becomes due when you sell, refinance, or pay off your home.

Key Differences Between Forbearance and Deferral

Forbearance postpones payments before you fall behind. Deferral addresses payments you’ve already missed.

Forbearance requires repayment within a few months. Deferral extends repayment until your loan ends.

Both options prevent foreclosure proceedings. Both help homeowners facing temporary financial hardship.

Qualifying for Mortgage Deferral

Contact your mortgage servicer to discuss deferral options. Your servicer will review your financial situation and hardship.

Most servicers require documentation of your hardship. Bank statements, termination letters, or medical bills may be necessary.

Federally backed loans (Freddie Mac, Fannie Mae, FHA, VA) often have specific deferral programs. Private loans may have different requirements and terms.

Pros and Cons of Mortgage Deferral

Benefits of Deferral

• Makes your loan current immediately
• Avoids lump-sum payment requirements
• Prevents foreclosure proceedings
• No increase in monthly payment amounts
• Provides time to stabilize your finances

Drawbacks to Consider

• Creates a large balance due at loan maturity
• May complicate future refinancing
• Interest continues accruing on deferred amounts
• Requires solid repayment plan when selling or refinancing

Other Alternatives to Consider

Mortgage deferral isn’t your only option when struggling with payments.

Loan Modification

Permanently changes your loan terms to make payments affordable. You might extend your loan term or reduce your interest rate.

VA loans can extend up to 30 years total. The extension can’t exceed 10 years from your original maturity date.

Short Sale

Sell your home for less than you owe with lender approval. Avoids foreclosure and its severe credit impact.

Deed in Lieu of Foreclosure

Voluntarily transfer your property to your lender. Avoids foreclosure proceedings but you lose your home.

Chapter 7 or Chapter 13 Bankruptcy

Bankruptcy can provide relief when mortgage debt overwhelms you. Chapter 13 allows you to catch up on missed payments through a repayment plan.

Chapter 7 can eliminate other debts, freeing up money for mortgage payments. You can speak with a bankruptcy attorney for free to explore your options.

Taking Action on Your Mortgage

Contact your mortgage servicer immediately if you’re struggling with payments. The earlier you act, the more options you’ll have.

Gather documentation of your financial hardship before calling. Bank statements, pay stubs, and hardship letters strengthen your case.

Ask specific questions about deferral terms and requirements. Understand exactly when the deferred amount becomes due.

Don’t ignore the problem hoping it resolves itself. Proactive communication with your servicer prevents foreclosure proceedings.

When Mortgage Relief Isn’t Enough

Sometimes mortgage problems stem from overwhelming overall debt. If credit card debt, medical bills, or other obligations drain your finances, mortgage relief alone won’t solve the problem.

Bankruptcy offers a comprehensive solution for crushing debt. Chapter 13 bankruptcy creates a manageable repayment plan while stopping foreclosure.

Chapter 7 bankruptcy eliminates most unsecured debts within months. You can redirect that money toward your mortgage payments.

A bankruptcy attorney can explain how bankruptcy protects your home. Many attorneys offer free consultations to discuss your situation.