Skip-Payment Mortgage
What Is a Skip-Payment Mortgage?
A skip-payment mortgage is a home loan product that permits a borrower to skip at least one payments with practically no penalty. The interest accrued during the skipped periods will rather be added to the principal, and regularly scheduled payments will then be recalculated once they resume.
Skip-payment mortgages are generally common outside of the United States, particularly in Canada and in a few Asian countries.
Understanding Skip-Payment Mortgages
A skip-payment mortgage program is intended to give relief to borrowers who experience a brief hardship like illness or injury. Every Canadian bank offers its own program, however as a general rule, the programs permit the equivalent of one month of skipped payments each year.
Borrowers must have a strong credit score to meet all requirements for a skip-payment mortgage and they must in any case be modern on their mortgage payments. Borrowers ought to know that they will in any case owe the interest and principal that they would have paid in that month. As a matter of fact, the election to skip a payment adds to the interest cost over the life of the loan. The interest is moved into future payments and the principle stays unchanged since no regularly scheduled payment was made.
The borrower is likewise responsible for covering insurance and property tax during the skip period. The upside of the skip-payment offer is that the borrower can miss a payment with next to no damage to their credit score.
A few Canadian banks even offer an extended skip-payment program which permits the borrower to skip up to four continuous months of mortgage payments. The banks alert consumers that exploiting such an offer will essentially add to the interest costs of a loan.
Misleading Skip-Payment Offers in the U.S.
U.S. consumers frequently receive marketing materials from lenders offering the chance to skip a couple of months' mortgage payments. Borrowers ought to treat these offers with extreme bias, as they will quite often really be promotions for refinancing programs. As part of the refinance settlement process, borrowers will frequently go for a little while without making a regularly scheduled payment.
This gap in payments can lead to a false impression that refinancing lets the borrower free for a regularly scheduled payment or two. The borrower will in any case be responsible for making those payments; as a rule, these payments are lumped into closing costs.
Some U.S. financial institutions in all actuality do offer skip-payment plans on vehicle, boat, or credit card loans, yet admonitions like those of the Canadian programs apply. Borrowers will in any case have the principal balance to pay, and will probably add to the interest costs of the loan by deciding to skip a payment.
Features
- A skip-payment mortgage awards borrowers a grace period for nonpayment without punishments or charges.
- The interest and principal due that was skipped is amortized into future mortgage payments, which expands the regularly scheduled payments going ahead just barely.
- U.S. borrowers ought to be careful about misleading marketing strategies that promote skip-payment grace periods, however as a matter of fact don't.
- While uncommon in the U.S., skip-payment mortgages are found in countries like Canada and the Philippines to assist with giving a relief to homeowners.
