Should You Take A Holiday From Your Mortgage?

Many lenders offer the option of a “Mortgage Payment Holiday”.

A mortgage payment holiday means that you can skip a mortgage payment for one or more months.  We all know that the Christmas Season can be expensive.  This seems like a great idea but I encourage you to avoid this feature if you can.

Why Is A Mortgage Payment Holiday a Bad Idea?

The issue is the accumulated interest.  Interest that you didn’t pay during your “vacation” has been added back into the principal of your mortgage.  It is called interest capitalization.  This means your mortgage itself has actually increased.  When your “vacation” is over, your regular mortgage payments could be even higher than before.  The Bank may extend your amortization to cover the higher amount.  This makes it take longer to pay off your mortgage.  You may pay thousands more for your mortgage in the long run.

When Might It Be OK To Use the Mortgage Payment Holiday Option?

If you are at a point where you aren’t sure you will be able to make your current payments and you are at risk of falling into arrears, speak to your lender or Mortgage Broker immediately.  You may be eligible to refinance your mortgage to make lower monthly payments.  Think of this “vacation” as an emergency strategy instead of a holiday may help put this option into perspective.  Keep in mind that Banks are under scrutiny by the Financial Licensing bodies of the country.  They will try to help you with emergency options.  Having a confidential conversation with your banker may help you save your home.  If you decide to use this strategy,  remember that you are still responsible to keep paying the property taxes and mortgage insurance premiums.