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What Is a Mortgage Deferral?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 29 October 2014
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Just like the name seems to suggest, a mortgage deferral is a type of arrangement whereby a person with a scheduled mortgage repayment obligation is relieved of this burden by the lender for a defined period, at the end of which the borrower will be obliged to resume the repayment of the loan to the lender as agreed. Usually, at the end of the stipulated period that serves as a sort of mercy period for the borrower, he or she will be able to liaise with the lender in order to come up with a schedule or repayment regime that will be mutually beneficial. Going by the rate of economic hardship experienced by a lot of homeowners who often find it tough to keep up with their monthly mortgage payment, especially during periods of personal extra financial woes, this will be an option to them. It will also be beneficial to the lender who might want to avoid having to go through the trouble of foreclosing on the property, in which case it might be a better strategy to grant the borrower a mortgage deferral.

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The exact length of time that the mortgage deferral will last is entirely dependent on the decision of the mortgage lender and whatever arrangement is finally reached with the homeowner, but the norm is usually for a period of 12 months. What usually happens is that the need for the request for a mortgage deferral is most often precipitated by some form of economic hardship on the part of the homeowner that makes it almost impossible to keep up with the payment of the monthly mortgage. Monthly mortgage repayments are always due at a predetermined date of the month beyond which the borrower would be termed delinquent in the payment of the loan. This has the ability to absolutely lower a person’s credit score, in addition to the very real possibility that the lender will initiate foreclosure proceedings after several missed payments.

This is where the mortgage deferral comes in handy, because the borrower can apply for it in order to ward off the negative implications of missing mortgage payments. Such a person would be given a stated time within which to sort the issues out at the expiration of which the regular payments will resume as before. Depending on the agreement or the stipulations of the mortgage deferral plan, extra charges might attach to the homeowner in the form of a higher interest for the application of the mortgage deferral.

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