What to Ask Your Lender Before Deferring Payment

27 May

As unemployment rates continue to rise, many Americans are having a difficult time paying their mortgage. In many cases, lenders are offering assistance to their customers, making it possible to defer your mortgage payment. 

The process may vary depending on your lender, so it makes sense to ask questions and fully understand the process and your obligations before agreeing to a deferment plan. Here are a few questions to ask your lender so you have a full understanding of the deferment process:

Do I qualify for a payment deferment?

The first thing you need to do is determine if you are even eligible for a deferment. The requirements will vary depending on your lender. Be prepared to show proof of your economic hardship. This may include pay stubs or a letter from your employer that you are currently on furlough or have been laid off. 

Not all lenders are requiring proof, others may accept your application for a payment deferral without asking any questions or requiring any proof of hardship.

How long is the deferment period?

The length of the deferment will usually depend on your lender. If you have a government backed loan from Freddie Mac, Fannie Mae, FHA, USDA, or the VA, you should be able to request a forbearance of up to 180 days. You can also ask another 180-day extension if you’re still financially struggling after the initial extension. 

If you don’t have this type of mortgage you will have to contact your lender directly to ask about a deferral and the length of the deferral. Be sure to get all details about their deferral policy and ask if they allow extensions if you are still struggling after the initial period. 

Get the exact dates of the deferral period?

Always get the exact dates of the payment deferral so you know when you have to make your next payment, this allows you time to plan. Confirm these dates with your lender and make sure you set a reminder, so you make the payment on time and are not hit with a late fee as soon as the deferment period ends. 

Will a deferral hurt my credit score?

While most lenders have stated that a deferral or forbearance won’t impact your credit score, it is important to ask and even have it in writing from your lender. Your credit score can have a big impact on your financial life, so it is always a good idea to get assurance from your lender. 

Are late fees going to be assessed?

It is unlikely that your lender will be charging late fees during the pandemic, but it always pays to make sure, ask your lender in advance whether any late fees will be charged during the deferral period. 

Will I Still Be Charged Interest?

It is unlikely that your lender will suspend the interest from accruing on your mortgage. Discuss with your lender if they are still charging interest and how that could impact your loan. In some cases, if you can afford it, your lender may allow you to simply pay the interest amount of your mortgage payment, this may make your payment more affordable.

How does the pay back work?

This is a key detail and can be confusing so make sure you get all of the repayment details up front and have a clear understanding of your obligations. While some lenders only offer one repayment option, other lenders may give you a few choices. Here are a few of the common repayment options:

  • Repay the entire deferred amount in one lump sum at the end of the deferral period. This can be a difficult option, especially if you are unemployed. If your lender insists on this option, you may want to reconsider a deferral. If you have a government backed loan, this is not your only option. 
  • Tacking your missed payments onto the end of your loan term is a pretty common solution being offered by lenders. This means that your loan term will switch from 30 years (or whatever your loan term is) to 30 plus three months or however long your deferment lasts. 
  • Spread the deferment amount over the life of your loan. This option will push up your monthly payment a bit after the deferment ends but it doesn’t increase your loan term. This is a great option if you can afford the slightly higher payment.
  • If your mortgage is backed by Freddie Mac or Fannie Mae, you can request a specific repayment method that will be available starting July 1, 2020. This method offers you the option to make one lump sum payment when your mortgage term ends. This means you would pay the entire deferred amount when you sell or refinance your house or when you pay off the mortgage completely. 

How will the deferral impact taxes and insurance?

Many homeowners bundle their property taxes and homeowners insurance payments into their mortgage payment. Check with your lender how this needs to be dealt with and if you need to make those payments separately. While you may be able to defer the taxes or have them rolled into your deferral repayment, you may need to pay the insurance premium separately or contact your insurance company about a payment plan if you cannot afford your premium.

Can You Send Me This Agreement in Writing?

It is possible that the person you talked to gave you incorrect information so it is always important to get the agreement in writing so you can refer back to the details of your agreement in the event your lender doesn’t live up to their end of the agreement. Ask for a letter or email outlining the details of your deferment. Always get the name and title of the person you talked to as well. 

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