Why are Big Bank so Eager to Offer Mortgage Vacations?
We’d all like to take a paid vacation now and again. And while your boss might not be offering it, many of the big banks have started offering ‘mortgage vacations,’ although they’re not structured in exactly the same way. With mortgage vacations, you pay a little extra every month on your mortgage and that extra bit is tucked away, waiting for you to go on mortgage vacation – one month where you don’t have to pay for your mortgage at all. But why the sudden interest by the banks to start offering them? Turns out, it might be because it benefits them more than it does the consumer.
“In most cases, there is no fee for this option,” says Marcel Greaux, mortgage broker with Mortgage Alliance, on how banks are so eager for customers to take them up on this option.
That eagerness may come from the fact that the interest from that unpaid month is still taken on by the customer, and it’s added to the principal amount. There it can continue to collect interest, and cost the homeowner much more – both in time and money.
“Any skipped interest is added to the principal balance,” says Greaux. “This is where it gets dangerous, as the increase costs start to compound and ultimately work in favour of the lender, not the borrower.”
And he also says that, while the option may be a convenient one for homeowners, there are better ways to get a little extra cash when you need it.
“I would say the option is convenient to have available, but should only be used as an absolute emergency. ‘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 HELOC, if available.”
Have you ever taken a mortgage vacation? Would you like to?