Will a Mortgage Company Defer a Payment? Navigating the Complex World of Loan Deferment

The short answer is yes, a mortgage company may defer a payment, but it’s not a guarantee and comes with caveats. The decision hinges on your specific situation, the lender’s policies, and current economic conditions. Understanding the intricacies of mortgage deferment can be crucial when facing financial hardship, and this guide will equip you with the knowledge to navigate this challenging process.

Understanding Mortgage Deferment: More Than Just a Pause Button

Mortgage deferment, often confused with forbearance or loan modification, essentially allows you to temporarily postpone your monthly mortgage payments. This means you get a break from making payments for a defined period, providing much-needed breathing room during times of financial distress. However, it’s crucial to understand that deferred payments are not forgiven. They are typically added to the end of your loan term, increasing the overall amount you’ll eventually repay.

Several factors influence a lender’s willingness to grant deferment, including:

• The Reason for Deferment: Lenders are more likely to consider deferment if you’ve experienced a job loss, serious illness, natural disaster, or other significant life event that impacts your ability to pay.
• Your Payment History: A strong payment history significantly increases your chances of approval. Lenders are more inclined to work with borrowers who have consistently met their obligations in the past.
• The Lender’s Policies: Each lender has its own specific policies and guidelines regarding deferment. Some may offer more flexible options than others. Understanding these policies is critical.
• Government Regulations and Programs: During economic crises, government-backed programs may offer broader deferment options. Staying informed about these programs is essential.

The Application Process: Presenting a Strong Case

Applying for mortgage deferment requires a strategic approach. You’ll need to gather documentation to support your claim and present a clear picture of your financial situation. Here’s a step-by-step guide:

1. Contact Your Lender Immediately: Don’t wait until you’ve already missed a payment. Proactive communication is key. Explain your situation and inquire about deferment options.
2. Gather Necessary Documents: Be prepared to provide documentation such as proof of job loss (e.g., termination letter), medical bills, insurance claims related to a disaster, bank statements, and pay stubs.
3. Complete the Application Thoroughly: Fill out the application form accurately and completely. Any missing information can delay the process.
4. Explain Your Financial Hardship Clearly: Write a detailed letter explaining the reason for your hardship and how deferment will help you regain financial stability. Outline your plan for catching up on payments once the deferment period ends.
5. Follow Up Regularly: Stay in contact with your lender to check the status of your application and address any questions they may have.

Potential Pitfalls and Considerations

While mortgage deferment can provide temporary relief, it’s essential to be aware of the potential drawbacks:

• Increased Overall Cost: As mentioned, deferred payments are typically added to the end of your loan, increasing the total interest you’ll pay over the life of the loan.
• Potential Impact on Credit Score: Although deferment shouldn’t directly impact your credit score if handled correctly, it’s crucial to confirm with your lender that they will report the deferred payments appropriately. Misreporting could negatively affect your credit.
• Risk of Foreclosure if Terms Aren’t Met: Failure to comply with the terms of the deferment agreement could lead to foreclosure. Make sure you understand the agreement completely and can meet the requirements.
• Alternative Solutions Might Be Better: Deferment might not always be the best option. Explore other alternatives, such as loan modification (permanently changing the terms of your loan) or refinancing (obtaining a new loan with better terms). A financial advisor can help you determine the most suitable solution for your specific situation.

FAQs: Deferment Decoded

Here are some frequently asked questions to provide further clarity on mortgage deferment:

1. What’s the difference between mortgage deferment and forbearance?

Forbearance is a temporary postponement or reduction of mortgage payments. The missed payments are usually repaid through a lump-sum payment, increased monthly payments, or added to the end of the loan term. Deferment, on the other hand, specifically refers to adding the missed payments to the end of the loan term. While the terms are often used interchangeably, this distinction is crucial for understanding repayment options.

2. Will deferring my mortgage payments affect my credit score?

Ideally, no. As long as your lender reports the account as “current” during the deferment period, your credit score should not be negatively affected. However, it’s vital to confirm this with your lender in writing before entering into a deferment agreement. Misreporting can lead to a drop in your credit score.

3. How long can I defer my mortgage payments?

The length of the deferment period varies depending on the lender and your specific circumstances. It typically ranges from 3 to 12 months.

4. What happens at the end of the deferment period?

At the end of the deferment period, you’ll resume making your regular monthly payments, plus the deferred amounts are tacked onto the end of the loan, extending your mortgage term.

5. Can I get my mortgage payments deferred if I’m self-employed?

Yes, self-employed individuals are eligible for mortgage deferment. However, proving your income and financial hardship may require additional documentation, such as tax returns, profit and loss statements, and bank statements.

6. What if I can’t afford to resume my regular payments after the deferment period?

If you anticipate difficulty resuming payments, contact your lender before the deferment period ends. Discuss alternative options like loan modification to permanently adjust your loan terms to a more manageable level.

7. How do I know if mortgage deferment is the right option for me?

Consider your long-term financial situation. If you anticipate a temporary financial setback and can comfortably resume payments after the deferment period, it may be a suitable option. However, if your financial difficulties are more long-term, explore other alternatives like loan modification or selling your home. Seek advice from a financial advisor.

8. Can a mortgage company deny my deferment request?

Yes, a mortgage company can deny your deferment request. Common reasons for denial include insufficient documentation, a poor payment history, or the lender’s internal policies. If your request is denied, ask for a written explanation and explore alternative options.

9. Are there any fees associated with mortgage deferment?

Some lenders may charge fees associated with processing a deferment request. Be sure to inquire about any potential fees upfront and factor them into your decision.

10. What is a partial claim and how does it relate to mortgage deferment?

A partial claim is an option offered by HUD/FHA where the agency advances funds to your mortgage servicer to cover delinquent payments. You then have to repay the amount advanced through a separate, interest-free subordinate mortgage. While not deferment per se, it provides a similar form of payment relief and prevents foreclosure.

11. Should I consult with a housing counselor before applying for mortgage deferment?

Yes, consulting with a HUD-approved housing counselor is highly recommended. They can provide free guidance, help you understand your options, and assist you with the application process. Find a counselor in your area through the HUD website.

12. What if my lender isn’t being helpful or responsive?

If you’re having trouble communicating with your lender, consider filing a complaint with the Consumer Financial Protection Bureau (CFPB) or your state’s attorney general. These agencies can investigate your complaint and help you reach a resolution with your lender.

Navigating mortgage deferment can be complex, but understanding the process and potential pitfalls will empower you to make informed decisions and protect your financial future. Always communicate openly with your lender, explore all available options, and seek professional advice when needed.