Skipping Two House Payments

You have probably seen countless offers from advertisers that promote your ability to skip two house payments during the refinancing process, and in essence, this is true.  But as with anything else that appears to be free, at some point you will have to pay for this ability.  Before you decide whether refinancing your home is the right decision or not, you should first establish what your net benefits for refinancing will be.  If the only benefit to you is your ability to skip two payments, then you should probably not continue with the refinancing process.  If you need to skip two payments as a way to make ends meet, there are many other venues you can pursue instead of adding thousands upon thousands of dollars to your loan. 

To clarify, skipping two house payments simply means that if you refinance your home in October, then you will not be required to make another house payment until December 1^st.  Basically, you will skip your October and November payment obligations.  This is an attractive feature to have in connection to your refinance, but it is not a special promotion, and can be accomplished no matter who your lender might be.  Every lender will have the ability to skip the two house payments for you during your refinancing option. 

The concept behind this is quite simple.  Unlike, let’s say, your cable bill, where you pay for your cable and then watch it for the 30 days, you actually live in your property for 30 days and then pay for it.  Your house payments are made in arrears; the December 1^st payment will actually pay for the interest on the home for November.  You may have even noticed this when you moved into the property the first time.  Did you make your first house payment at the closing table or were you billed later?  If you think about it you will realize that you were billed later. 

During the refinancing process a lender will order a payoff for your existing mortgage or mortgages.  The payoff will include everything that is owed up to the point of closing.  In actuality, the payoff will include a two or three day cushion within it.  This is to account for the time it takes a title company to wire payoff funds to a lender and for the lender to post the funds to the account. 

So, let us assume you have your closing scheduled for October 15^th.  In order for you to take advantage of skipping two house payments you will need to hold off from making your October payment to your current lender.  The payoffs received from your current lenders will include everything owed on your existing loan, including your October payment.  Your new lender will then use these payoffs to calculate your new loan amounts.  Remember to use common sense and don’t spend the October payment funds before your refinance takes place!!! You should always hold on to these funds, so that if something does go wrong on your refinance you are still able to pay your October payment quickly, before you go 30 days late on your credit report.

Once the loan closes, the new lender will issue you their first billing statement, which will follow the first full month the new lender has the loan.  In this case, your first full month will be November, because you closed on your new loan in the middle of October, making October a partial month.  On December 1^st you will be responsible for making your first payment with the new lender.  As you can see, you did not make a payment on October 1^st nor did you make a payment on November 1^st; essentially, you have skipped two house payments.

Something we may have overlooked is the amount you owe for living in the property from October 15^th through October 31^st.  Obviously, the new lender will not allow you to live in the home 16 days without paying for it, so these funds are collected at closing as a part of your new loan amounts.  These funds are accounted for in the number of “prepaid days interest” listed on your final HUD settlement statement. 

Before we conclude this topic let’s do one last run through it:  You would have made your September 1^st payment to your previous mortgage provider, before refinancing into your new mortgage in October.  Everything owed on your previous mortgage up to your October 15^th closing date, including your current October payment, would have been included in the payoff given to your new lender.  This enables you to bypass your need to pay your October 1^st payment. 

You would still need to account for living in the property from October 15^th through October 31^st.  You will see that these days are accounted for at closing, where the “prepaid day’s” interest are collected and added back into your new loan as a transaction cost.  Because the original payoff includes everything up to October 15^th, and the new loan closing costs will include prepaid days interest from October 15^th through October 31^st, your entire month of October is then accounted.  This will allow you to bypass your November 1^st payment, which would have billed you for your October interest.

Finally, you will need to remember that your mortgage payments are made in arrears, which means that your new payment due date will be December 1^st.   This payment will accounts for your 1^st full month’s interest, which would be for the month of November. If the last payment you made on your mortgage was September 1^st and your following payment did not take place until December 1^st, you can easily see that you would have skipped October and November payments.  This is how you skip two house payments when you refinance your home.