What's the difference between mortgage forbearance and deferment? It comes down to interest and repayment methods

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  • During the coronavirus pandemic, many lenders are offering either mortgage forbearance or deferment, which are both types of relief that allow you to pause or reduce monthly payments.
  • Interest always accrues while payments are in forbearance, and interest sometimes keeps building with deferment.
  • Forbearance typically requires you to repay the paused amount in a lump sum at the end of the forbearance period; deferment lets you make repayments over time.
  • During the pandemic, you’ll often hear these two terms used interchangeably, so be sure to ask your lender about the terms of your mortgage relief before enrolling.
  • Read more personal finance coverage »

Countless mortgage lenders are offering payment relief during the coronavirus pandemic. When you research or talk to your lender about relief options, you’ll probably hear two words pop up repeatedly:forbearance and deferment.

Both forbearance and deferment are types of mortgage relief programs that let you pause or reduce monthly mortgage payments. These two relief options are very similar, and many people use them interchangeably – yes, even lending and banking professionals.

An increasing number of mortgage relief programs are coming along during the pandemic, so the difference between forbearance and deferment is becoming even more confusing than usual. Before you enroll in either, be sure you understand what you’re signing up for.

The differences between mortgage forbearance and deferment

There are two main differences between forbearance and deferment: interest accrual and how/when you repay.

ForbearanceDefermentInterestInterest always accrues Interest sometimes accrues RepaymentRepayment due in lump sum at end of forbearance period Repay over time With forbearance, interest always continues to accrue, even when payments are paused. When you enroll in deferment, interest may or may not keep building, depending on your lender.

With forbearance, you typically repay the paused amount in one lump sum after the forbearance period ends. So if you paused payments for three months, at the end of the three-month period you’d pay everything you owe at once.

Deferment has two repayment options, and both allow you to repay the borrowed amount gradually.

Your lender might require you to repay the amount over time so your monthly payments increase, or your payments could be added to the end of your loan term. So if you have a 30-year mortgage and deferred payments for three months, your term length would change to 30 years and three months.

The terms are often used interchangeably during the coronavirus

Many people mix up forbearance and deferment under normal circumstances. As more and more mortgage relief programs are created during the coronavirus, you’re bound to hear the two words used synonymously.

For example, the FHFA recently introduced what it’s calling a “deferral” option for people with Fannie Mae- and Freddie Mac-backed loans. But the option is for homeowners to pay back the deferred amount in one lump sum when they sell, refinance, or pay off their home completely. Usually, mortgage deferment takes place over an extended period of time, not all at once.

Why isn’t the FHFA deferral option being referred to as forbearance, then? It’s hard to say. Maybe because people can repay at the end of their loan term rather than at the end of the forbearance period.

Some banks are also using the terms deferment and forbearance interchangeably on the COVID-19 relief pages of their websites. Or they claim to offer one or the other, but the description of the relief program doesn’t match the typical definition of either word.

Before enrolling in either, ask your lender about the terms

Because the differences between forbearance and deferment are so murky right now, be sure to ask your lender about the terms of your mortgage relief program before enrolling. Don’t assume that interest will be paused just because you’re deferring or that you’ll repay in one lump sum just because you’re enrolling in forbearance.

In general, try to get as much information as possible before accepting mortgage relief during the pandemic. Mortgage deferment and forbearance can be helpful, but you don’t want any surprises down the road that could cause long-term problems.

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