# Skip a mortgage payment on a Rental Property



## rossonero (Jul 16, 2012)

Hi, 

Some banks offer the ability to skip a mortgage payment once a year. For owners of rental properties, does it make sense to do this? It increases cash flow and even though the interest gets added to the principal balance, the interest is tax deductible anyways. Thoughts on this?


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## Just a Guy (Mar 27, 2012)

Well, depending on your profits I suppose it may make you a bit, however it makes the bank more in all likelihood...

Actually, now that I think about it, it would delay total repayment by 1 month, making you less in the long run....

For example, let's say you made $1000/month on a rental $600 being mortgage, $400 gross profit. By skipping a payment, you'd make an "extra" $400, but, had the place been paid off in that month, you would have made an "extra" $600 (actually $1000 since you'd still get the original $400 as well) instead as you wouldn't have made the mortgage payment.

Yes, the $600 would have been taxable, but it puts money in your pocket. The tax deductible interest puts money in the banks pocket instead of giving it to the government, so you'd probably be further ahead paying off the mortgage, depending on your tax situation....


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## crazyjackcsa (Aug 8, 2010)

Let's really think about this. Like with math and stuff. All you're doing is skipping a payment. Interest accrues as normal. The bank is in effect allowing you to lengthen your amortization. So yes, it will help on a month to month basis, but not over the long haul.

Let's look at those crazy little digits: For fun, I'll assume a rated of 3.25%, and a 100k mortgage over 25 years. Paid monthly. That's 12 payments of $486.17. The total over 25 years: $145,850.

So you want to skip a payment every year? You have effectively lengthened your mortgage out to 29 years. Total cost, $154,000. Tax implications? Negligible, for or against.


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## Just a Guy (Mar 27, 2012)

Okay, so using Crackerjackcsa's numbers you are paying $8,150 to defer ownership for 4 more years with no tax implications. 

However, had you paid off your mortgage, you would have made $8,150 of taxable income over those same 4 years (money that goes to you now, not the bank).

Maybe I didn't explain my thinking properly before.


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## crazyjackcsa (Aug 8, 2010)

I understood what you meant Just a Guy,and I totally am on side with what you wrote. I just don't think the OP thought the it through. So I figured actually attaching some numbers too it would help.And there would be some tax implications, just they would be so minor as to not make a case one way or another.


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## Just a Guy (Mar 27, 2012)

I didn't take offence, but sometimes I may not make sense in my ramblings, so I thought I should clarify.


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## dogcom (May 23, 2009)

I think it is better to think of it as an insurance against having a short term cash flow problem which is really what it is for. So if you go a month with out having a renter for example then it makes sense to skip a payment.


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## Mall Guy (Sep 14, 2011)

rossonero said:


> Hi,
> 
> Some banks offer the ability to skip a mortgage payment once a year. For owners of rental properties, does it make sense to do this? It increases cash flow and even though the interest gets added to the principal balance, the interest is tax deductible anyways. Thoughts on this?


IMO . . . I think if this is the only way you can make the property have positive cash flow, it's very likely you should not have bought the property to begin with . . .


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## GTA Mortgage (Aug 29, 2012)

dogcom said:


> I think it is better to think of it as an insurance against having a short term cash flow problem which is really what it is for. So if you go a month with out having a renter for example then it makes sense to skip a payment.


I agree...it acts as a safety nice for "vacancy allowance" (which you should some set aside just in case).


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## cardhu (May 26, 2009)

Financially speaking, you should skip a payment ONLY if you have a better use for the money. For example, if you have any non-deductible debt, that would usually (though not always) be a better use. If your interest rate is ultra-low, and there are investments available with better return, that may also be a better use. 

The effect on amortization is a distraction , and shouldn’t be a significant influence in your decision ... a rental property doesn’t exist in a black box independent of all the other things that are going on in your financial life ... focus on the big picture.


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