Industry Terminology: Forbearance vs. Deferment
April 21, 2020
During this novel coronavirus (“COVID-19”) pandemic, the NewRez family of companies is committed to helping our customers, including offering alternate payment programs as allowed by loan owners/investors. Things are changing quickly, and we recognize the growing number of customers whose employment statuses have changed or are in flux. As a result, we want to help our customers understand some of the mortgage-related terminology currently appearing in media, press briefings, and online.
Available options will depend upon the owner/investor of the loan (i.e., Fannie Mae, Freddie Mac, etc.), the type of loan a customer has, and other factors that must be considered on a case-by-case basis.
What is Forbearance?
Forbearance is a program under which the customer temporarily pauses paying on a mortgage or temporarily pays at a reduced rate. The customer will be responsible to repay any missed payments after the forbearance period (either in lump sum or in adjusted payment amounts over a period of time). At the end of the forbearance period, you will need to discuss with your servicing team the options available to you as next steps. These may include:
- Forbearance Continuation – An additional number of months during which payments are paused or reduced.
- Reinstatement – When the borrower brings a loan current in single payment.
- Repayment Plan – A way to pay back a loan over an extended period of time, generally by making fixed monthly payments (in addition to the regular loan amount due).
- Loan Modification – A change made to the terms of an existing loan. It may involve a reduction in the interest rate, an extension of the length of time for repayment, a different type of loan, or any combination of the three.
What is Deferment?
Deferment is a period of time during which a customer does not have to pay interest or principal on their loan. The principal and interest might be added to the end of the loan in the form of a lump sum balloon payment or the maturity date of the loan might be extended by the number of months that have been deferred. Please note that deferment has not been made available by all loan owners/investors as an option to borrowers.
It’s important to recognize that forbearance and deferment are not loan forgiveness programs. Both require repayment of the paused payment amounts.
If you’re worried about your mortgage payments in the near future, please sign in to your account to learn about your options and complete COVID-19 related documentation if necessary.
We will continue to monitor COVID-19 and evaluate additional measures that may be available to support our customers and communities. Thank you for being part of the NewRez family.