CARES Act – Forbearance or Deferment

Are you deferring your mortgage payments or have a loan forbearance? Is it affecting your credit? Is the loan still collecting interest? Here is the down and dirty…

If you have elected to do a loan forbearance with your lender, make sure you understand the terms they go by. Most lenders are doing three-month forbearance where you do not have to pay your loan over a three-month period. The kick to that, is on the fourth month, all three previous months and now the fourth month are due IN FULL with a balloon payment. During this forbearance, your lender most likely tacked on all of the interest over that three-month period as well. If you were unable to pay a monthly payment, how are you going to pay four months at once? This is why it is important that you READ THE FINE PRINT! Speak with your loan officer extensively and make sure this is the right move for you.

Now, if you are looking to defer your loan payments, this is a bit different. A loan deferral is going to tack on your payments to the end of your loan so you are essentially taking those months off.  Some lenders will even not charge interest during the loan deferral as well. This is something that you need to find out from your lender as some will still charge interest.

No matter which way you go, make sure everything is agreed upon in writing!

Which is better for you? Loan deferment is most likely the best option for you as the borrower. Loan forbearance is better for the lender. They are going to collect all of the interest and payments in full.

We have seen on a few different forums and social media that some people are reporting that their credit is getting hit for electing loan forbearance or deferments. It is very likely that if you elect one of these, you will get a not put on your credit report, however, it is not supposed to impact your score.

One of the tenants of the CARES act allows you to negotiate with your lender on credit reporting. If you have been negatively impacted due to the ongoing pandemic, you have the ability to negotiate. If you work things out with your lender and set up an agreement for forbearance or deferment, they are not supposed to report negative impacts to your loan if you are upholding your end of the terms. If you are keeping up your end of the deal and find that the lender reported negative activity to your credit report, dispute it!

Hopefully this helps some of you to make a decision if you should apply for loan forbearance or deferment. If I was to choose, I would choose deferment. We hope all of you are remaining safe and healthy during these trying times. Keep grinding and pursuing your goal to financial freedom.

Join in on the discussion on the forums.

Mike Cavaggioni
Mike Cavaggioni

Mike Cavaggioni is an Active Duty Officer in the U.S. Navy, REALTOR-ASSOCIATE®, Real Estate Investor, and Finance Coach located in Honolulu, HI. He is the founder of Average Joe Finances and host of the Average Joe Finances Podcast. Mike is building a community for people to come together to learn and build their wealth.

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