How to Skip Two Mortgage Payments When Refinancing

Refinancing a mortgage offers homeowners many benefits, such as securing a lower interest rate, reducing monthly payments, and tapping into home equity. However, one lesser-known advantage is the opportunity to skip up to two mortgage payments during the refinancing process. This financial relief can provide much-needed breathing room for homeowners managing expenses. But how does this work, and is it truly skipping payments, or is it just shifting financial obligations?

In this guide, we’ll explore how skipping two mortgage payments during refinancing works, the benefits and risks involved, and best practices to ensure a smooth refinancing process.

Understanding How Skipping Mortgage Payments Works

Skipping mortgage payments when refinancing is not a loophole or a lender giveaway; it’s a financial timing strategy that occurs due to the way mortgage payments are structured. Here’s how it works:

1. Mortgage Payments Are Paid in Arrears
   Unlike rent, which is paid in advance, mortgage payments are made in arrears—meaning you pay for the previous month’s interest and principal. If your mortgage is due on June 1st, that payment covers May’s interest and principal.
2. Closing Date and First Payment Due Date
   When refinancing, the new loan pays off the existing mortgage, and the first payment on the new loan isn’t due immediately. Most lenders structure the new loan so the first payment is due at least one full month after closing. Depending on the timing, this could mean skipping two payments.
3. Prepaid Interest Covers the Gap
   At closing, prepaid interest is collected for the remainder of the closing month. If a refinance closes on June 10th, prepaid interest will be due for June 10th–June 30th. Since mortgage payments are paid in arrears, the first new mortgage payment won’t be due until August 1st, allowing the homeowner to “skip” both June and July’s payments.

Example of Skipping Two Mortgage Payments

Imagine a homeowner who normally makes a mortgage payment on the 1st of every month:

• Current Mortgage Payment Due Date: June 1st (covering May’s interest)
• Closing Date on New Refinance Loan: June 10th
• Prepaid Interest at Closing: Covers June 10th–June 30th
• First Payment on New Loan: August 1st

Since June’s mortgage is paid at closing and the first new mortgage payment is due in August, the homeowner effectively “skips” both June and July’s payments.

Benefits of Skipping Two Mortgage Payments

1. Short-Term Financial Relief
   Skipping two mortgage payments frees up cash that can be used for savings, home improvements, or paying down high-interest debt.
2. Cover Closing Costs
   Refinancing comes with fees, but skipping payments can help offset the immediate cost of closing, making refinancing more affordable.
3. Improve Cash Flow Management
   If homeowners are managing multiple financial obligations, this short-term break can help balance expenses.

Potential Downsides of Skipping Mortgage Payments

1. Interest Still Accrues
   Although you’re not making two mortgage payments, interest is still accruing on the loan. That unpaid interest is rolled into the new loan balance, meaning you’ll pay it over time.
2. Higher Loan Balance
   If unpaid interest and closing costs are included in the loan, the total mortgage balance may be slightly higher than before refinancing.
3. Potential Misuse of Funds
   Some homeowners may use the extra cash unwisely instead of strategically applying it to high-priority financial goals.

How to Ensure a Smooth Home Refinancing Process

To successfully skip two mortgage payments when refinancing, homeowners should follow these best practices:

1. Time the Closing Date Carefully

• Closing early in the month may result in only skipping one payment instead of two.
• Closing late in the month (e.g., June 25th) results in a higher prepaid interest charge, so balancing the timing is key.

2. Understand Loan Terms and Prepaid Interest

• Ask the lender how prepaid interest will be calculated and included in the new loan.
• Ensure the first payment due date aligns with expectations.

3. Avoid Late Payments Before Refinancing

• Making late payments before closing can negatively impact credit and refinancing approval.
• Always make on-time payments until the refinance is officially complete.

4. Use the Savings Wisely

• Consider using the skipped payment funds to pay off high-interest debt.
• Save for unexpected expenses or reinvest in home improvements.

Common Misconceptions About Skipping Mortgage Payments

1. “Skipping Payments Means Free Money”

Skipping two payments is not a gift from the lender—it’s a restructuring of payments due to how mortgage interest works. Borrowers still owe the full mortgage amount over time.

2. “Skipping Payments Won’t Affect Loan Costs”

Interest continues to accrue on the unpaid principal, which may slightly increase the loan’s total cost over time.

3. “I Can Skip Payments Without Refinancing”

Homeowners cannot skip mortgage payments unless they refinance or work out a deferment plan with their lender during financial hardship.

Final Thoughts on Skipping Mortgage Payments

Skipping two mortgage payments when refinancing is a financial strategy that provides short-term relief while restructuring home financing. By understanding how interest accrues and loan payments are scheduled, homeowners can maximize the benefits while avoiding potential pitfalls.

Refinancing is like resetting a chessboard—every move should be strategic. Skipping two payments can be a game-changer for financial flexibility, but only if used wisely. As with any financial decision, careful planning ensures that the benefits outweigh the costs, making homeownership more manageable and financially rewarding.

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