Skipped Payments - Not a Solution

Unless it’s absolutely necessary or you have no other choice, don’t skip a mortgage payment, because it’s just too expensive.  Most lending institutions allow customers to skip a payment if a certain amount has been pre-paid, either through an off-on agreement or on a match-one-miss-one basis. 

But is it worth it?

Don’t be fooled, missing a payment doesn’t mean paying the same amount next time.  Be aware that the unpaid interest is capitalized (added to the outstanding principal).  The longer it takes you, the more you owe.  Furthermore, mortgage interest is a non-deductible expense paid with after tax dollars.  A skipped payment may be paid at anytime and at no cost, but it may be difficult to do if the original reason for skipping was out of economic necessity.  Try and work out some other arrangement before considering skipping a payment. 

Keep in mind that your interest cost will increase for every day you don’t pay.  Therefore, it’s advisable to first consult your banker to work out the interest costs, and see if alternatives exist, such as reestablishing normal monthly payments if you are currently making accelerated weekly or biweekly payments.

In a perfect world, the best mortgage is no mortgage.  Nonetheless, your goal should be to pay your mortgage as quickly and painlessly as possible.  Two such solutions are to switch from monthly to more frequent payments, and to shorten your amortization.  Setting an objective to be mortgage free will allow you to see how long the amortization should be, and if you can handle the payments. 

Taking a vacation from mortgage payments is definitely not the way to go, even if it sounds good.  Keep in mind that always in life if something sounds too good to be true, then it probably is.

For more information contact your Toronto Mortgage Broker at 416-920-9931

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