The "Skipping a Payment" Perk in Home Purchases and Refinances: What You Need to Know

If you're in the process of buying a new home or refinancing your current mortgage, you might hear about the opportunity to "skip a payment." This can sound like a fantastic perk—after all, who wouldn’t appreciate a little financial breather? But what does "skipping a payment" actually mean, and how does it work in your favor? Let's explore this concept and why it can be a positive aspect of your home financing journey.

What Does "Skipping a Payment" Really Mean?

When you're told you can "skip a payment," it means that your first mortgage payment on the new loan isn’t due until the second month after your closing date. For instance, if you close on your loan in April, your first payment might not be due until June. During this time, it may feel like you’re getting a break from your mortgage obligations.

This can be a welcome reprieve, especially during a major financial transition like purchasing a home or refinancing. You’re given a little breathing room, allowing you to manage other expenses or simply adjust to your new financial landscape without the immediate pressure of a mortgage payment.

Why It Feels Like Skipping a Payment

Here’s why it can feel like you’re skipping a payment: Typically, mortgage payments cover the previous month’s interest. So, when your first payment is due a month later than expected, it gives you a month off from making a payment. This is because, at closing, the interest from the day of closing to the end of that month is handled differently—often paid upfront at closing or rolled into the new loan.

For example, in a home purchase, if you close on April 15th, you won't have to make a mortgage payment in May. Instead, your first payment will be in June, covering the interest accrued during May. The interest from April 15th to April 30th was taken care of at closing, which is why May feels like a "free" month.

In the case of refinancing, the process is similar. You close your new loan, pay off the old one, and your first payment on the new loan isn’t due until a month later. This can feel like a bonus, giving you some extra cash flow for other needs.

The True Benefit: A Financial Breather

While you’re not technically saving money by skipping a payment—since the interest for that month is either included in your loan balance or paid at closing—there is still a real benefit. This gap in payments can provide you with a financial breather, allowing you to handle other priorities or simply enjoy the flexibility of not having to make a mortgage payment for a month.

This can be especially helpful during a home purchase, where there are often additional moving and setup costs, or during a refinance, where you might be restructuring your finances. That extra month can make a significant difference in easing the financial transition.

How It All Works

So, how does it actually work? Let’s break it down:

• Home Purchase: When you buy a home and close on your mortgage, you typically prepay interest from the day of closing to the end of that month. Your first payment isn’t due until the second month after closing, giving you a month without a payment. This can feel like a “skip,” but the interest for that first month has already been addressed at closing.
• Refinance: When you refinance, the interest from the old loan is prorated up to the day of closing and is typically paid at closing. Your new loan starts accruing interest from that point forward, and just like with a home purchase, your first payment on the new loan isn’t due until the second month after closing.

The Positive Takeaway

The concept of "skipping a payment" can be a positive aspect of your home financing journey, offering you a bit of financial relief during what can be a hectic time. While it’s important to understand that you’re not truly skipping any costs, the delay in payments can provide a much-needed break, allowing you to focus on other financial priorities or simply giving you some peace of mind as you transition into your new mortgage.

Whether you're purchasing a home or refinancing, this aspect of the process can make things a little easier. As always, I’m here to guide you through every step, ensuring you understand how these benefits work and how they fit into your overall financial strategy. If you have any questions or want to discuss your options, I’m just a call or message away. Let’s make sure your next step is not just the right one, but also a comfortable one.