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Mortgage Deferral Products: What Does It Mean To You?

by | May 29, 2020

There are currently over three million Americans who are unable to pay their mortgages. As the economy shifts resulting from COVID-19 gets worse, this number is likely to increase.

If you find yourself unemployed or had your income reduced, you’re likely wondering how you’re going to continue paying your mortgage. The good news is that there are many options out there for those in this kind of trouble.

One of your mortgage relief options is deferral.

Read on as we look at mortgage deferral in more detail and explain how it might be the answer to your mortgage problems.

What Is Mortgage Deferral?

Mortgage deferral allows you to delay payment of delinquent principal and interest on your mortgage for a given period. This might be until a later date in your payment schedule or at the end of the mortgage.

This program is for those who suffer some once-off financial hardship

This system benefits both borrowers and lenders. It allows lenders to resume earning money on non-performing loans. It also avoids the costs and difficulties arising from foreclosure. 

The Difference Between Deferral & Forbearance or Loan Modification

Forbearance is another means of delaying mortgage payments for those who are struggling to keep up. However, there are some essential differences.

One of the most significant differences is that forbearance often involves a reduction in the amount payable on the mortgage. On the other hand, the deferral allows for payment of the same sum at a later date.

A loan modification is another system financial institutions use to address delinquency on payments. This also involves an alteration of the amount owed each month.

180 Day Mortgage Deferral Programs

In response to the COVID-19 outbreak, Fannie Mae and Freddie Mac announced a 180-day mortgage deferrals program.

The Federal Housing Finance Agency directed the two national mortgage companies to take this action. It should prevent those in mortgage trouble from losing their homes.

This deferral option means that when your mortgage term ends, you pay the deferred amount back, generally without accruing additional interest on the deferred amount.  The borrower will be able to pay a lump sum in a few years instead of a few months.

The balance will become due according to the provider’s assessment, which should involve collaboration with the borrower.

In some cases, borrowers can avoid paying the balance until the end of the repayment period.

Advantages Of Mortgage Deferral

Many people can think of many reasons why a break from mortgage payments would be beneficial. In the current situation, some of these motivations are more relevant than ever.

We’ve gone through some of the most important benefits of mortgage deferral here.

Avoidance Of Foreclosure

This is the most significant advantage of this deferral program. Nobody wants to risk losing their home, especially at a time as difficult as this.

Deferral of principal and interest payments will allow you to rearrange your finances and pay off your mortgage debts at a pace that suits you. Without this facility, the loss of homes would be a lot more likely in many cases.

Keeping Money Aside In The Short Term

Many people may be suffering from a slight cash shortage rather than a catastrophic financial situation. If you’re in this situation, deferral can work for you.

If you’re in the position of having to choose between mortgage repayments and other necessaries, like auto insurance, energy bills, or grocery shopping, a deferral could create the room in your budget that you need to survive.

How to Apply for Mortgage Deferral

Under the CARES Act, there are options for those who have federally backed mortgages. Your lender may not foreclose on you for 60 days after March 18, 2020. Homeowners must contact their loan servicer if they have a financial hardship and need a mortgage deferral.

Also, not every mortgage-holder will be able to secure a deferral. To qualify, your provider must verify that you have suffered a financial setback and recovered. You must prove that you can make existing monthly repayments without a change in the amount of the payment.

This is not automatic so you must contact your service provider.  These banks could help you with a mortgage deferral and have their own requirements, so do your research.

The Solution You Need To Keep Moving Forward

COVID-19 has brought some challenges for almost everyone on the planet.

One thing you shouldn’t have to worry about is keeping your home. If you’re wondering how to keep up with your mortgage, having missed a payment, a mortgage deferral program might be what you’ve been looking for.

Check out of mortgage articles and tools for more tips and tricks on all things mortgages!

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