Is your bank offering you a tempting option in its mobile app, the so-called flexible payment, or is it even pushing the option to postpone your mortgage payments on you? Maybe you don't even need to defer payments due to financial hardship, but you're used to, say, investing in stocks—which I applaud, by the way. You might think that if the bank lets you skip payments for a while, you could invest the money you save. And the math behind this plan seems pretty bulletproof.
It sounds like a clever financial hack, but I'd recommend hitting the brakes. What at first glance looks like a brilliant move using a service your bank is offering you could actually be the worst financial trap you'll ever step into.
My name is Jakub Reckl, I've been in the world of finance for 13 years, and I specialize in mortgages, especially for clients with business income. And today, I want to show you what the bank doesn't quite tell you in that innocent-looking paragraph of your loan agreement about payment deferrals.
What the Bank Won't Tell You
Banks tend to present these services as a great client benefit, often free of charge, designed to give you financial freedom and some breathing room during tough months. The problem, however, is how the banking system and its relentless background algorithms view this move.
The moment you click to reduce or defer a payment in the app, a red flag goes up in the system. To the bank, it means only one thing: this client is in financial distress, clearly has cash flow problems, and probably doesn't have the money for their payment right now.
And what happens next? This seemingly innocent step gets recorded in the banking credit register. It's important to mention that a payment deferral itself doesn't a priori carry the same negative weight as, say, a late payment. However, believe me when I say that any bank that sees such a deferral in the registers will draw its own conclusions, and they probably won't even tell you.
From a Prime Client to a Risky One Overnight
In the eyes of the entire banking market, you go from being a prime, reliable client with a good payment history to a high-risk client, basically overnight. When you want to refinance your mortgage for a better interest rate in a year or two, or take out another loan, you'll very likely hit a brick wall.
Competing banks will look at the register, see your record of payment problems, and slam the door in your face. You'll needlessly cut yourself off from future financing and lose the chance to negotiate better terms.
It's also no secret that when it's time to refix your rate, your current bank will make you pay for it, so to speak. They'll know full well that you don't have many options to leave, so they'll give you a not-so-attractive offer, and it's quite possible you'll have no choice but to accept it.
A Story from the Field: Not Even the COVID Exception Helped
I have another story from my experience on this topic. Some of you might remember the mass payment deferrals offered as part of the relief package during the COVID-19 pandemic. You'd think it would be impossible for this to be viewed negatively under the circumstances. After all, half the country deferred their payments, and it was a completely extreme situation, right?
Well, you'd be wrong. In my own practice, I witnessed situations where clients had to wait for the payment deferral records to disappear from the credit registers before they could get a mortgage or refinance. As a rule, a bank will very rarely tell you the reasons for its decision to deny a loan. But I have it from good sources that in these cases, the real reason was the recent payment deferral under the so-called COVID moratorium.
Guard Your Credit History Like Gold
Your credit history is one of the most valuable assets you have, and I mean that with no exaggeration. Guard it like gold and always think very carefully about how your actions will affect your profile in the eyes of any institution you might want to borrow from in the future.
At the same time, both your mortgage and your investments can be set up smartly, effectively, and most importantly, safely, right from the very beginning, without you having to rely on a backup plan of deferring payments.
If you want to have your financing handled professionally and avoid these marketing traps, schedule a short, no-obligation consultation with me. We'll look at your real options together and come up with a strategy that makes the most sense for your situation.
