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How Do Mortgage Forbearance and Deferrals Work?

Mortgage forbearance and deferrals are temporary suspensions of your monthly mortgage payment during the COVID-19 pandemic. What does it mean to ask for one, and how do they work?

With the pandemic spread of Coronavirus and subsequent shutdown of the American and global economy, many American mortgage borrowers have been laid-off, furloughed, or otherwise experienced a disruption in their income. Because of this, the government has mandated that mortgage lenders and servicers offer their customers a break from their payments.

These programs allow homeowners to suspend mortgage payments for periods of up to 12 months, depending on how severe and long-lasting the pandemic becomes. However, this does NOT mean you don’t have to pay the money back. These programs will allow you to delay the payments, but they are not forgiven.

The options to repay the money will include paying all the delayed payments back in one sum, paying the money back in installments over time, or modifying the mortgage to extend the term. Each servicer and loan program will have slightly different options, so it’s important to make contact with your lender to find out what’s available to you. The Federal Housing Finance Agency has issued guidance to stipulate that these programs will not affect your credit scores, but it’s important to also confirm that with your lender.

If you do use one of these programs, you will not be eligible to refinance or purchase a new home with a mortgage until the forbearance or deferral ends. If you are able to continue making your payment, that’s the best thing to do. But, don’t put yourself in true financial trouble if you need help during these trying times.

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