Finance Globe

U.S. financial and economic topics from several finance writers.
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Skipping a Mortgage Payment

Your mortgage lender may give you the option of skipping a mortgage payment, for example, at the beginning of your mortgage or refinance. While it may seem like they’re doing you a favor, skipping that payment could actually cost you thousands of dollars by the time you’re done paying off your loan.

Lender-Allowed Skipped Payments

Skipping a payment, one that your lender is allowing you to skip, is easy in the short-term, but it actually costs more in the long run. You don’t get to just “skip” the payment. Instead, the interest that you would have paid during that first month, which is the largest interest payment of the entire loan, is added to your loan balance. Because your loan balance is a little larger, the interest you pay on each loan payment will also be a little larger. By the time you’re done paying your mortgage, you’ll have paid more interest than if you hadn’t skipped that first payment.

The Mortgage Professor gives an example of a $100,000 loan at 6%. Skipping the first payment on such a loan would cost $2,993 in interest on a 30-year loan. Paying the loan off faster reduces the amount of additional interest paid, $864 if the loan is paid off in 15 years.

Skipping Because You Can’t Afford to Pay

If you skip a payment when your mortgage lender hasn’t offered, you may face worse consequences. First, your loan contract requires you to make a mortgage payment every month. Catching up on a skipped payment requires you to make two payments instead of one. If you try to just resume your regular payments next month, you’ll technically still be considered late because your payment will be applied to your previously missed payment rather than the payment that’s currently due. And the currently due payment, if left unpaid, will be come past due.

Your lender will also charge a late payment fee on the missed payment. You’ll have to pay at along with your two mortgage payments (for the month you missed and for the current month). If the payment goes 30 or more days late then your delinquency will be reported to the credit bureaus. Your credit score might be impacted, especially considering how important a mortgage is to your credit score.

Contact your lender if you can’t afford to make your mortgage payment. You may able to defer a payment or go on temporary forbearance. Don’t skip a payment just because you can’t afford to pay. That skipped payment could hurt your chances at a refinance, should you seek to get a mortgage with a lower interest rate.

The more payments you miss the harder it is to get caught up. Many mortgage lenders start the foreclosure process once you’ve missed three mortgage payments. While foreclosure can take several months, possibly even more than a year, the record of your foreclosure could make it harder to find somewhere to live once you’re finally evicted.

The moral of the story: make your scheduled mortgage payment, even if the lender says you don’t have to. Skipping a payment is always more expensive than paying it when it’s due.

Sources: The Mortgage Professor, FICO
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Thursday, 25 April 2024

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