Can You Skip a Payment When Refinancing?


Can You Skip a Payment When Refinancing?

You might have heard this at some point in the past, either from a mortgage loan officer or perhaps some sort of mortgage marketing campaign. When you refinance a loan you actually skip your next payment and you’re essentially mortgage payment free for that month. But that’s not actually true.

Mortgage interest is paid in arrears. That means that on the first of every month when the mortgage payment is due, an amount goes directly to the outstanding principal balance and the remaining goes toward interest paid for the previous month. If last month had 31 days, the mortgage payment would include an amount to pay for accrued interest over the 31 day period.

Contrast this with prepaid interest. Prepaid interest is collected on all new mortgage loans whether the note is used to finance the purchase of a home or when refinancing. You may or may not remember but when you closed on your first mortgage the new lender collected prepaid interest depending upon the day of your closing.

If for example you closed and funded on the 20th of the month, the new lender would collect prepaid daily interest up to the first of the following month. In this example, 10 days of interest was collected. If you closed on the last day of the month, just one day of interest is collected. This by the way is why buyers are encouraged to close toward the end of the month to save on the amount of prepaid interest needing to be paid at the settlement table. Because you prepaid this interest, there is no separate mortgage payment needed on the first of the following month.

When refinancing there is both interest in arrears and prepaid interest involved. When a mortgage company accepts an application to refinance an existing loan, one of the first acts the lender will perform is to order a payoff amount from the current mortgage company. The payoff amount is the total amount needed to completely retire the previous mortgage. This amount includes both the outstanding loan balance and accrued interest that has yet to be paid.

If the closing takes place on the 20th, the payoff amount would include the outstanding principal balance, 20 days of accrued interest and 10 days of prepaid interest up to the first of the following month. Because this prepaid interest is typically rolled into the loan amount, there is no mortgage payment needed for the following month. This is where the phrase “skip a payment” comes into play. But that phrase is false. There is in fact a payment it’s just rolled into the loan amount. Borrowers can elect to pay the prepaid interest out of pocket instead of adding it to the new loan but that’s somewhat rare. Yes, the loan amount is increased but really by a very small amount and the monthly payment is only marginally affected.

When you hear of a loan officer explaining how someone can skip a mortgage payment when refinancing, that’s really not true. There is a payment made- it’s just included in the new mortgage.



Single Family Home Activity in the Antelope Valley

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New Listings …  30
Sold …  20
Pending …  24
Expd/Wthd/Cancld …  19
Price Increases …  01
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Number of listings* …  1313
Average Days on Market …  93
Short sale/pay listings …  10
Equity listings …  1187
Bank owned listings …  20
HUD, Corp, Probate and Auction listings …  47
Days of inventory (at the average rate**) …  32.56
Days of inventory (at yesterdays rate**) …  33.67
Actual Number of days of inventory***  …  145.89

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* Count includes all ACTIVE and CONTINGENT MLS listings
** Assuming no future growth or reduction
*** At yesterdays depletion rate (∞ indicates negative depletion,
inventory would not be depleted at this sales rate)

To Turf or Not to Turf


That’s increasingly the question for homeowners. After all, grass is a huge pain to take care of, is a water hog, and is expensive to replace (again and again). If artificial grass is on your radar, it’s time to take a look at some of the pros and cons.

Pro: No maintenance

You don’t need to mow artificial grass, or edge it or seed it or water it. Once you lay it down, you’re done.

Con: It can be expensive initially

Like putting in a brand-new lawn, laying down turf can be pricey. You’re talking about a range of $8–14 per square foot, and while you can definitely find some sales and deals, you’ll want to keep in mind that, in general, you get what you pay for. The good news is that you won’t need to replace it or re-seed it.

Pro: It can last a long, long time

That means that, depending on how long you live in the home, it might pay for itself. “The life expectancy of artificial turf can be upwards of 25 years,” said Gardenista, “making it a less costly alternative to real turf over its life span.

Con: It might be against the rules

If you live in a community with a Homeowner’s Association (HOA), be sure to get permission first. Turf is becoming more common and more in-demand, which is convincing more HOAs to approve its use; but that doesn’t mean it’s approved everywhere. In certain communities, the HOA directs which types of real grass can be used, and which can’t. You don’t want to make a big investment in turf only to be told you have to rip it out and replace it with grass.

Pro: It’s eco-friendly

The water savings element is huge if you’re looking to live a litter greener. And, “Some manufacturers use recycled materials, such as old tires or plastic bottles,” said Gardenista.

Con: But, it is not biodegradable.

So, yeah. It’s still going to end up in a landfill some day.

Pro: It’s pet-friendly

“The good news is that pet waste won’t negatively impact your artificial grass, and turf is easy to clean,” said Purchase Green. “Tight, but permeable backing allows urine and fluids to drain. In fact, smaller sections are often used for designated pet potties. Just as these can be lifted to clean throughout, your artificial grass lawn can be enhanced with dog-friendly features for optimum absorption and draining.” There are also specific types of turf that are designed for animals.

Con: It’s hot.

In fact, it can really get up there. “Real grass has a cooling effect when the air temperature is high. Artificial grass lacks this cooling quality,” said SFGATE. “The grass itself may become hotter than the air and can make the surrounding air feel hotter.”

Pro: It’s great for shaded areas

Say goodbye to that patchy lawn.

Con: It’s never going to be grass

If the the smell, look, and feel of real grass does it for you, turf probably won’t. While some of the better offerings can do a pretty good job of fooling the eye and the foot, plastic is still plastic.

Pro: It looks great all year round

If you live in an area where the lawn is dormant in the winter, it may take some time getting used to seeing your lush, green (faux) lawn, even in negative temps. But, we’re sure you’ll get there.