Brokers to clients: Beware banks offering skip payments

Mark David
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Many of Canada’s big banks offer clients the opportunity to skip payments on their mortgages. While this can work to their advantage, mortgage brokers are not big fans of strategy.

One of the main reasons why consumers are drawn to this method is because it does not require any additional fees. Banks have also stepped up their promotion of that option.

"In most cases, there is no fee for this option, and your payments won't change during the term of your mortgage," explains Mortgage Alliance broker Marcel Greaux.

Although customers find this option convenient, it can create a potentially precarious situation for them in the long term.

"Any skipped interest is added to the principal balance," Greaux says. "This is where it gets dangerous, as the increase costs start to compound and ultimately work in favour of the lender, not the borrower."

Greaux understands the advantage of the skip-a-payment option for homeowners, but believes that brokers should not recommend it to their clients.

"I would say the option is convenient to have available, but should only be used in an absolute emergency," he says. "Skip-a-payment is more like defer-a-payment due to the interest compounding at a later date.

A more prudent measure to access funds may be to make use of a LOC, if available."


  • Phil McDowell on 2013-12-05 9:25:12 AM

    Before taking a "skip-a-pay", the borrower should confirm the actual rate charged on the Skip. Is it the contract rate, posted rate at time of the advance, or some other rate declared in the credit disclosure statement accompanying the mortgage advance/renewal? It could be higher than the contract compounding rate

  • Chad Eliason on 2013-12-05 9:34:53 AM

    If they use this option, does it still leave them in good standing at time of renewal?

  • Cameron Mackie on 2013-12-05 11:08:59 AM

    @Chad Eliason – Depending on the lender. It all comes down to what shows up on the payout statement.

    I can almost consider this to be another retention tactic with some lenders.

    Recently I had a client come to me, their mortgage was up for renewal. Client informed me they never missed a payment however they neglected to inform me they “skipped” a payment.

    This file went all the way to the solicitors to close only to find out the current lender put the "skipped” payment down as a late payment.

    Due to timing the clients had no choice but to renew with their current lender for a short term.

    As agents and brokers we should all fully understand the fine print and its repercussions. Selling a perk or additional service these days can come back to haunt us if we’re not careful.

  • Bryan Jaskolka on 2013-12-07 4:07:44 AM

    I agree. These "mortgage vacations" do not help homeowners, except maybe for that one month when they don't have to pay. There's too much fine print, too many conditions, and too much space for human error in order for these to be worthwhile, in my opinion.

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