So I received an unmarked piece of mail the other day, and whenever that happens, I know it’s going to contain some kind of nonsense.
Upon opening the letter, which I could have easily just thrown away, I discovered that it was a mortgage solicitation. Fun!
More specifically, it was a refinance offer from a random mortgage company I’d never heard of.
It began by informing me that their “loan restructuring team” had reviewed my home loan and determined that I might be able to refinance my mortgage to a new low rate.
Sweet! Although I think they’d have a lot of trouble getting my mortgage interest rate any lower.
Even better, they mentioned that as an added “bonus,” I might get the opportunity to skip one or even two mortgage payments. Wow! That’s amazing!
However, they cautioned that they receive high call volume, so to leave a message if I don’t get a live rep on the phone…
Skip a Mortgage Payment or Skip Writing a Check?
- Ever heard of skipping a mortgage payment?
- It’s a common sales pitch used by mortgage brokers and loan officers to excite homeowners
- Often listed as one of the many benefits of refinancing
- But do you really skip a mortgage payment or simply delay it?
Here’s the thing with skipping mortgage payments. It’s kind of a misnomer because you don’t really skip a payment, you skip writing a check to your lender, or sending a monthly payment electronically.
In reality, you still pay interest each and every day that you live in your home and hold a mortgage; it’s just disbursed a little differently between the two lenders.
How to Skip One Mortgage Payment
- This is actually pretty common when refinancing your mortgage
- Or even when purchasing a new home depending on when you close
- Often you can pay prepaid interest for the month upfront at closing
- Then get a month off from mortgage payments
Skipping one mortgage payment is pretty standard. For example, if your refinance closes on April 10th, you wouldn’t have to make your next mortgage payment until June 1st because mortgages are paid in arrears.
In other words, you pay March’s interest with your April mortgage payment, and April’s interest is prepaid at closing with the new loan because it occurs mid-month.
The interest for the month of May isn’t due until June 1st, thus a “skipped mortgage payment.”
However, this scenario assumes that you make your April payment to your old lender before the April 15th grace period.
Similarly, if you buy a home in mid-April and pay interest due for the month of April at closing upfront, your first mortgage payment won’t be due until June 1st.
This can provide a nice reprieve while you inevitably spend money on movers and new furnishings for your home.
How to Skip Two Mortgage Payments
- This is a little trickier as you might suspect
- But it’s still possible to skip two mortgage payments
- If you close early in the month before your next payment is due
- And the interest due is paid via the refinance
In order to skip two mortgage payments, you’d need to close your refinance sometime prior to the 15th of the month, before the payment on the old mortgage is due (using the grace period to delay and avoid payment).
This way you wouldn’t need to make the April payment to your old lender, so your final payment (toward the old mortgage) would be the March mortgage payment (for interest due from February).
Then you wouldn’t have a mortgage payment due until June 1st because interest for March and April is paid via the refinance transaction.
However, you still actually pay the interest due for March and April. It’s not avoided by any means. It just isn’t paid to your lender directly in the form of a monthly mortgage payment.
Instead, it is included in the loan payoff or paid upfront at closing as prepaid interest.
Then interest accrued in May is paid with your June mortgage payment via your new mortgage.
Tip: This can be dangerous if your loan doesn’t close by the 15th and you’re assessed a late fee, so tread carefully while trying to skip two mortgage payments.
So I’m Just Delaying My Mortgage Payments?
- There is no free lunch in the mortgage world or elsewhere
- You aren’t getting a mortgage payment “on the house”
- It’s simply being pushed out another month or two
- Which can still be beneficial for someone looking for a little payment relief if cash flow is light
The takeaway here is that you don’t actually skip any mortgage interest, you just kind of skip over the payment(s).
Once the first payment is due on your new mortgage, you’ll still be making 360 payments if it’s a 30-year mortgage (or 180 payments if it’s a 15-year mortgage).
It’s a bit of a joke that lenders send out these solicitations telling you that it’s a special bonus to skip a mortgage payment (or two) because you still have to pay all the interest due.
And it’s not unique to any one lender – it’s just how mortgages are paid off.
The only potential value is added cash flow if you need your money for something else in the short term. And that’s not necessarily a bonus everyone wants or needs.
However, during an economic crisis, such as right now with the coronavirus, it could help some homeowners out, so it does have its place.
At the same time, the skipped payment(s) means the refinance will extend the term of your loan, so your mortgage will take that much longer to be paid off in full, assuming that’s your goal.
In summary, there’s nothing inherently wrong with skipping mortgage payments, but you should know what you’re really “getting” by doing so.
Read more: Creative ways to pay off your mortgage early.