Chances are, your lender doesn’t want you to pay your mortgage bill.
Many would prefer to electronically lift the payment from a customer’s bank account rather than receive mailed checks.
Not only do lenders encourage these automatic payments, some offer incentives to borrowers who set up electronic payments as soon as they take a loan.
Washington Mutual, for instance, takes $200 off closing costs for customers who set up automatic deductions. In Chicago, Harris Bank customers who set up a checking account and have their mortgage payments automatically deducted get $250 off closing. Many lenders will shave a slight amount from the rate on second mortgages or equity lines of credit with auto-deduct, notes Reed Brunzell of Baird &Warner Financial Services, Winnetka.
Even if there isn’t a specific reward for initiating auto payments, lots of borrowers do so for the convenience of not writing a monthly check and worrying about whether that check arrives on time, says Melody Angelos, president of A&B Mortgage Co., Palatine.
Despite the benefits, authorizing your lenders’ computer to reach into your account carries some risk, warns Margo Saunders, an attorney with the National Consumer Law Center, Boston.
Here are some things to know about handing over such an important financial chore as paying the mortgage:
– Going on autopilot means you’ll stay in a lender’s good graces and avoid late penalties.
Typically, mortgage payments are due on the first of the month, and there’s a “grace period” until the fifteenth. Should a mailed payment arrive after that, customers are usually assessed a late fee.
Should a payment be 30 days late, lenders make an official note of the tardiness on the borrower’s credit record. Any reported late payment will depress a person’s credit score, reducing chances of qualifying for credit offers. And a late pay on a mortgage within the last twelve months essentially kills borrowers’ chances for a new, competitively priced mortgage should they want to move or refinance, notes Angelos.
– Maintaining some control may still be possible.
“You usually don’t have to schedule the payment to be made right on the first of the month, but you can schedule it a few days later during the grace period or even earlier,” says Brunzell.
If you want to stop one particular payment, you should be able to call your bank within three business days of the automatic withdrawal and instruct them to skip it, notes Saunders. Some banks may require written notification in addition to a verbal request. Though this is the law, Saunders says she’s fielded complaints from consumers (not necessarily dealing with mortgage payments, but other automated payments) about banks mishandling these requests.
– Starting and stopping are when snafus are likely to occur.
When computers talk to each other, as they do in autopay programs, problems tend to happen at the beginning or end of the process. Right after you close on your loan, you may have to make your first payment by check, for instance, if the automatic debit hasn’t yet kicked in, according to J.K. Huey, senior vice president at IndyMac Bank.
When borrowers are paying off their loan, it’s advisable to make sure at least five days before the payment is scheduled that the process is canceled because of the pay-off, adds Huey.
– Watching replaces writing.
Check periodically, but especially after that first withdrawal, that the amount is correct, advises Michael Herd of NACHA, an electronic payments trade association in Herndon, Va.
When a payment amount changes from month to month, which can happen with variable-rate mortgages and home-equity lines, the bank where the account is held or the mortgage company taking the payment is required to send a notice to the customer of the debit amount.
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