With ample talk of loan modifications, underwater mortgages and rampant home foreclosures -- and with over six-million jobs lost during the past 17 months, according to the U.S. Department of Labor, the temptation to skip a mortgage payment may never be higher.
Why? If you’re unemployed, or suffered a health scare that’s swallowed up your cash, taking a one-month break from your mortgage payment responsibilities might give you some breathing room.
And, true enough, skipping one mortgage payment won’t get you thrown out of your house. Some banks, like JP Morgan Chase (Stock Quote: JPM) and Bank of America (Stock Quote: BOA), are even making mortgage loan “freezes” part of their loan modification programs
But hold the phone – sure, you won’t lose your home by missing one mortgage payment, but you do risk losing your financial lifeline in the form of a good credit score, and that could negatively impact your personal financial situation for years.
Let’s have a look:
- First, if you skip a mortgage payment, you don’t actually skip a mortgage payment. How so? That’s because even though you don’t write the mortgage check now, you’ll have to write it down the road, and through adding a few extra numbers for late fees and finance charges, that can translate into hundreds of extra dollars in payments.
- Second, even though you’ve missed a payment (for now), you still basically kick the can down the road. Interest continues to accumulate even though you didn’t pay your monthly mortgage. As any economist can tell you, prolonging your debt may be good for your mortgage lender, but it’s not good for you.
- Finally, by skipping a mortgage payment, you’ve opened the trap door to a significantly lower credit score, and that could severely impact your financial health. Everything from your credit card rate to your future ability to buy a car or a home is tied to your score. A new job could be on the line, too. Many employers are including credit checks as a part of background checks and a questionable credit history could make getting your dream job that much more difficult.
There’s also the question of whether or not you should skip a mortgage payment to increase your chances of qualifying for a bank or government-qualified loan modification program. In a word, don’t. Most banks say that missing a payment does not increase your chances of getting a loan modification. Your best bet is to contact your lender right away and ask for a loan modification packet and advice on how to finance your mortgage if you’re behind on your payments.
Having a cash flow problem is a major headache on its own, but dealing with it by skipping a mortgage payment only makes it worse. If you’re struggling to keep up on your home payments, your best move is to pick up the phone, call your lender, explain your situation, and work with them to create a plan to keep your mortgage loan moving forward.
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