TD has been offering homeowners the option to take a mortgage vacation. Essentially, TD is giving people a free pass to take a break from their mortgage payments if they have prepaid a certain amount before taking that vacation. To many people this may seem like an excellent option, especially for someone who is going through a huge life change such as a new baby. There are a few things to consider before jumping on this offer that could have lasting impacts on your mortgage.
First, while you are taking this mortgage vacation, the interest is still accumulating. This means that while you may not be having to fork over the payments at that particular time, your interest is still compounding. You have to also consider that you have paid this money already so it is not really a vacation at all and only works as a way to build your interest back up that you worked so hard to keep lower. For many, this will detract from their goals of paying of their home more quickly.
You could also end up paying a larger amount in payments when you come back from your mortgage vacation. How this works is that TD may adjust the amortization period remaining at renewal so that the mortgage does not exceed the original amount or amortization thus possibly creating a higher mortgage payment.
This option may be a good one for someone who has paid ahead but simply cannot make a payment due to a temporary drastic change in income. This could be for someone who is going through a job transition or someone who has an unexpected medical bill. Because of the lasting effects this vacation could have on mortgages many people are opting out of the vacation because it is not something that they necessarily need. If a need is present it may be something you want to consider, but not a necessarily good decision for those that are ahead and can remain ahead.
While anything with the word "vacation" in it may seem like you are giving yourself a break do not be fooled by the fact that interest still exists and will continue to grow while you do not pay on your mortgage. In many ways, this revokes all of the good saving habits you have created and reduces it to a free pass that really does not even exist because you will still have to pay back the interest once you start your payments again.
Most likely, the best option is to continue to pay your mortgage as you always have. For those that are able to pay more on their mortgage they are only ensuring that they will be paying off their mortgage more quickly and that is probably worth more than a few months of no mortgage payment at all. It is an option that may work for some but should be treated as an option and not an offer that you feel like you have to take because it has been handed to you.