A skip-payment mortgage is a specialized loan feature that allows borrowers to intentionally skip one or two mortgage payments each year without triggering default or penalties, as outlined in the loan agreement. Instead of forgiving the missed payments, the lender either adds the deferred amounts to the principal balance or spreads them over future payments, which usually increases the total interest paid over time.
This product is quite rare and typically benefits borrowers with predictable, seasonal income fluctuations—such as freelancers, commission-based workers, or seasonal employees—who might struggle during certain parts of the year. It is not intended as a last-minute hardship solution but as a planned option embedded in the loan terms.
How Does a Skip-Payment Mortgage Work?
The ability to skip payments must be part of the original loan contract. The agreement specifies when and how often payments can be skipped (commonly one or two times per year). When a payment is skipped, lenders usually:
- Add the deferred payment to the loan principal, increasing the loan balance and total interest paid (a type of negative amortization).
- Or, spread the skipped payment over future installments, making subsequent payments higher until the deferred amount is repaid.
Common Alternative: Bi-Weekly Payment Plans
True skip-payment mortgages are uncommon, but many borrowers achieve similar flexibility by using a bi-weekly payment strategy. Paying half the monthly mortgage amount every two weeks results in 26 half-payments annually, which equals 13 full payments—one extra full payment than typically required.
This extra payment reduces principal faster, lowering total interest costs. Additionally, borrowers can build a credit balance to cover a future payment, effectively allowing them to skip a month without extra fees or loan modification.
| Feature | Skip-Payment Mortgage | Bi-Weekly Payment Plan |
|---|---|---|
| How it’s set up | Written into the mortgage contract | You set up with lender or self-managed |
| Skip payment funding | Skipped payments added to loan principal or future installments | Extra payments pre-fund the skip |
| Impact on interest | Usually increases total interest due to deferred principal | Generally reduces total interest by faster principal reduction |
| Availability | Rare and not offered by most lenders | Widely available to most borrowers |
Who Benefits Most?
This option suits borrowers with seasonal or irregular income needing short-term payment relief, such as:
- Seasonal workers (e.g., landscapers, tourism industry employees)
- Commission-based professionals (e.g., real estate agents)
- Freelancers and small business owners with fluctuating revenue
Important Considerations
- Not a free payment: Interest continues accruing on skipped amounts, increasing the loan cost.
- Different from forbearance: Forbearance is a temporary relief for hardship, often requiring lender approval outside the loan terms.
- Avoid third-party bi-weekly plan fees: You can usually set up bi-weekly payments directly with your lender or on your own for free.
Frequently Asked Questions
How do I get a skip-payment mortgage?
You’ll need to request it from lenders during the mortgage application process; few offer this feature. Alternatively, use a bi-weekly payment plan with your current mortgage for similar benefits.
Does skipping a payment hurt my credit?
If done per your loan agreement, no. Unauthorized missed payments are reported as delinquencies and can damage credit.
Is it a good idea?
For those with reliable income cycles, it can offer short-term relief, but generally, it’s wiser to build an emergency fund and stick with standard mortgage payments to minimize overall costs.
For more details on mortgage payments and repayment strategies, see our glossary entries on Loan Amortization and Repayment Schedule Options.
References:
- Consumer Financial Protection Bureau: Bi-Weekly Mortgage Payment Plans
- Investopedia: Skip-a-Payment Mortgage
- Forbes Advisor: Bi-Weekly Mortgage Payments
This article aims to clarify the rare option of skip-payment mortgages and practical alternatives for managing mortgage payments flexibly.
