Skip-payment Clause Definition

Some mortgages have a skip-payment clause, a provision allowing the borrower to periodically skip a monthly payment with prior approval from the mortgage lender. The skipped payment typically results in negative amortization for the month though this may be offset by prior overpayments. Skip-payment clauses are popularly exercised in January or February when post-Christmas bills come due.

Borrowers should be aware that a skipped payment is not a "free" payment-the mortgage principal will increase and the mortgage will take longer to pay off. Some other forms of loan accounts may have skip payment privileges, while some credit cards make occasional offers to account holders; these are usually termed "payment holidays". No matter the name, skipped payments always result in an increased principal.