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You lose your job, your car breaks down, or your roof starts leaking. Normally this would be the time to dip into your emergency fund. But if you don’t have an emergency fund, skipping a mortgage payment as a homeowner, might seem like a good option. Some mortgage lenders allow you to occasionally skip a payment—but is it a good idea?
Here are a few things to keep in mind before you decide whether or not to skip a payment.
Is it allowed?
First off, not all mortgages are created equal. While some lenders and products may allow borrowers to skip a payment, others do not. The first thing you need to do is figure out if you’re allowed to skip a payment—and, if so, on what terms.
Most lenders will allow you to skip one monthly payment per calendar year. If your mortgage payments are weekly or biweekly rather than monthly, you’ll usually be permitted to skip the equivalent of a month’s worth of payments.
There are typically certain qualifications you have to meet in order to be able to skip a payment. For example, your mortgage can’t be in arrears, meaning you haven’t missed any payments in the past. Make sure you get all of the details you’ll need, in order to make an informed choice.
How much will it cost?
Skipping a mortgage payment does more than simply kick the can further down the road. Not only are you failing to put money towards your principal loan amount, you’re also accumulating interest on the missed payment.
That additional interest gets added on to the total amount left on your mortgage, leaving you with a larger loan than you had before the missed payment. That means you’re essentially borrowing more money, leaving you paying more interest in the future. The increase in interest probably won’t be dramatic, especially if you have one of the best mortgage rates available on the market. However, it can add up over time. The impact will be worse if you’re at the start of a 25-year amortization period than if you’re close to paying off your mortgage.
Many lenders have an online mortgage payment calculator that you can use to figure out how much it will cost you.
How do you catch up after missing a payment?
You’ll have to pay back more than just the amount of the missed payment in order to get caught up. You’ll also have to repay the additional interest that you racked up by deferring your payment. It’s best to do this as soon as possible in order to minimize the amount of excess interest that you’ll have to pay.
Let’s say you’ve been paying off your mortgage faster than required by making slightly larger payments. In this case, skipping a payment will likely put you right back where you started— meaning you’ll lose all that you had saved on interest in the first place.
Is it worth it?
So, given the additional costs, is it ever worth it to skip a mortgage payment? That depends on your personal circumstances. Most experts suggest that if you have another avenue available—such as trimming down expenses or borrowing extra cash from a family member—you should try that first. It could save you a significant chunk of change over the long run.
If you don’t have other options, skipping a payment isn’t the end of the world. But make sure it isn’t a regular occurrence. If you’re consistently having trouble making your payments, you may want to try to refinance your mortgage at a lower rate.
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