Mortgage Payment Options

the bank will give you a special rate if you pay your mortgages up front...

Do not lock yourself into a biweekly payment structure.

In fact, it's not a good idea in general to arrange for automatic bill payment out of your account EVER. There may be times when you're caught off-guard with an unexpected expense and your account happens to be low on that particular day that the bank tries to syphon the money out.

You're much better off on a traditional monthly payment cycle. If you want to save money in the long run, include an extra payment to principal in each month's check.

I agree that it's not a good idea to arrange for auto bill payment. If your mortgage gets sold, a common occurrence, there will inevitably be a blip in the system that doesn't catch an auto payment generated to the *old* mortgage company. Getting it back will be a red tape nightmare.

Always do a push, never allow a pull, when it comes to ACH bank transfers.

"Always do a push, never allow a pull, when it comes to ACH bank transfers."

Love this.

Help me ... "ACH" means ... ?

ACH is automated clearing house. It's merely a payment directly out of your checking account to a specific payee. Just like writing a check, but you don't have to write a check, nor snail mail it.

I'll stick to writing checks on my own, and mailing them out.

The bank can wait that extra 48 hours.

>I'll stick to writing checks on my own, and mailing them out.

which get scanned and converted to ACH.

Besides, check fraud is more prevalent than ACH fraud.

new2RE

Most banks charge you to make biweekly payments. Why would you want to let them do that? If it makes sense for you to pay down more quickly (and whether you do or don't will depend on lots of factors over the next 20+ years), you can get the same benefits by making some additional payments to principal when you feel like it. Flexibility is a good thing if there's no cost to preserving it.

Why not take out a shorter-term mortgage?

with some banks, you can initiate the mortgage payment from the mortgage banks website. You can initiate on the 15th and receive credit/avoid late fees

Or you could just pay on time to avoid those late fees ...

Thanks for your thoughts on this issue. I think I will go with the standard monthly option and just make an extra payment each month designated "Extra principal payment". Anything else I should be thinking about re mortgage options?

I don't think locking into a bi- weekly payment makes sense. It is equivalent to make an extra payment every year without the obligation of having to make payments every 2 weeks. Depending on your financial situation, some months you may need some extra cash. Just make the extra payments when you have extra money on hand. I'm not a big fan of paying paying down a mortgage unless your goal is to pay it off completely. Sunny.hong@bankofamerica.com

I don't often agree with bankers who have a vested interest in keeping people indebted, but shong has a point here.

There may come a time -- God forbid, but in this economy these days anything is possible -- when you lose your job and you might not be able to replace your income for many, many months. You'll wish you still had all that cash you threw at the bank for your mortgage still sitting in your savings account.

Unless and until you have a minimum of three years of living expenses in the bank, these days, it borders on fiscal irresponsibility to pay down the mortgage debt.

"There may come a time...when you lose your job and you might not be able to replace your income for many, many months. You'll wish you still had all that cash you threw at the bank for your mortgage still sitting in your savings account."

True. You'd need all that cash to pay the mortgage that you're still indebted to.

or interest on that mortgage

"I'll stick to writing checks on my own, and mailing them out."

who writes actual check these days? I haven't written a check in months, maybe a year.

"True. You'd need all that cash to pay the mortgage that you're still indebted to."

Here's the thing.

Say you make double payments to your mortgage company for two years. Instead of $2000/month, you threw $4000/month at CitiMortgage or some such black hole. That's $24,000 a year ... or $48,000 total ... that COULD have gone into your own savings account.

Now you lose your job. You blow through your savings in a matter of months. You can't pay your mortgage. Citi doesn't care that you paid double for two years -- they only care that you meet your minimum requirements every month, which now you cannot do. That $48,000 you essentially "prepaid" to Citi before your lost your job is long gone, and now Citi still wants its monthly minimum payments, which you do not have.

Welcome to foreclosure. You'd have been much better off socking that money away for a rainy day.

"who writes actual check these days? I haven't written a check in months, maybe a year."

I go through three boxes of checks a year.

There's an old article about this in the NYTimes.
http://www.nytimes.com/2011/07/03/realestate/the-benefits-of-a-biweekly-mortgage-plan-mortgages.html

Matt, your suppositions could just as easily go the other way. Say you pay extra payments with your current income, and then you *don't* lose your job (gasp!). At the end, you're left with no mortgage, and all that money to stash in your savings account.

And massive savings on interest, to boot.

Suppositions can go both ways. In your scenario, your suppositions assume losing a job and still being debt-ridden. In my scenario, my suppositions assume staying employed and paying down debt quickly.

I've never lost a job in my life, and I retired quite early, voluntarily. I also own three mortgage-free properties. Perhaps your sceario merely reflects your life more accurately.

And just to be clear, I'm not advocating a bank-designed biweekly mortgage. I'm advocating paying your mortgage down quickly, via extra principal payments every year.

"I've never lost a job in my life, and I retired quite early, voluntarily. I also own three mortgage-free properties. Perhaps your sceario merely reflects your life more accurately."

Good for you.

Tens of millions weren't so lucky. Quite a few of those "never" lost a job in their lives, either.

The article posted addressed my concerns. Thanks rng0513. I had never planned on using a third party plan. Many banks do not charge a fee for setting up biweekly payment plan. However, what they don't tell you up front is that many hold the payments until the end of month. End up saving very little and they get the float. In a higher interest rate environment the float would make it more costly for the borrower. I will definitely set up an extra principal payment with my bank (the push) - talking perhaps $500 or so - not doubling my mortgage payment. I'm pretty conservative financially and want to have a healthy reserve. Isle of Lucy nailed my motivation - would like to save on some of those interest costs. Thanks again to all.

Of course NYCMatt's issues could be solved by a combination of:
1 - Buying a smaller home
2 - Renting
3 - Not pricing yourself out of a job with triple penalty overtime wage rules, inflexible job rules, strikes, strongarming your employer, etc.

NYCMatt
about 10 hours ago
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"who writes actual check these days? I haven't written a check in months, maybe a year."
I go through three boxes of checks a year.

A box of checks is 125-200 checks * 3 boxes = more than 1 check per day, meaning you must be that "man" in line at the grocery store holding us all up.

just manage your payments yourself. It's nice to have a 30 year rate, but it is also nice to have a 7 or 10 year I/O and pay the principal at your own pace, if you have the discipline. But at today's rates, no point in not locking in for 30.

Also, most loans allow you to pay down principal in a large chunk, and then will recalculate the total payment - I forget what it is called - but that is also an option later on.

With the exception of the sold mortgage, I don't understand why so many are against automatic payment. Automatic payment simplifies your life and provides better assurance that your payment will be timely (I believe late mortgage payments can kill your credit score). There is a bit of predictability of when payments will be "syphoned" from your bank account (e.g., can time mortgage payment shortly after you receive your paycheck). I'm not suggesting that automatic payment allows you to "set it and forget it." With some periodic checks of your account, you'll know if you have enough money in your account for the automatic withdrawal. Also, you know exactly how much will be deducted. In contrast, I like to initiate my credit card bill payments. The total amount may be different one month to next.

Billy, there are several reasons why people would be opposed to the biweekly auto-bill pay.

First of all, it's total bullshit for a bank to charge for the privilege of getting its hands on your money two weeks early.

But even if it doesn't charge, there are other pitfalls. Do you know what kills your credit rating even more than a late payment? A bounced check. Which is very easy when you have auto-bill pay period, let alone having it happen every other week. With so many Americans operating so close to the margins, it's not unusual on any given day -- with so many checks floating around, ATM transactions, emergency cash withdrawals, etc. -- for your balance to happen to be below the actual mortgage payment on that very day of the auto-pay. And those charges incurred by both your bank and the mortgage company for that one bounced "check" -- $50 or $60 -- would offset any potential interest savings for the year.

Also, most mortgage companies allow a 15-day grace period anyway. If you can't get your act together -- once a MONTH -- and get your payment in less than half a month late, you have bigger financial responsibility issues that an auto-bill pay arrangement could address.

It's also generally never a good idea to allow anyone but YOU access to remove money from your account. EVER.

BillyRes, both written checks and electronic ACH transfers operate the same way. The "push" is when you initiate it --- it's the equivalent of writing somebody a check.

On the other hand, automatic payments are like giving somebody a handful (unlimited, actually) of blank checks that are already signed by you, and trusting that they won't screw up (or screw *you*). This is what's known as a "pull" by the bank, and it's generally a bad idea, mostly in the case of a sold mortgage, as you understand. Other entities of ill-repute may also screw up, although I've never actually seen it happen.

I understand how autopayments can simplify your life. In my case, it's a once-bitten-twice-shy concept, so I just don't do it.

As far as how the bank and the world sees it, a paper check and an electronic ACH transfer occur in the exact same manner. Once that paper check is presented for payment, it goes through the automated clearing house system the exact same way as an electronic bank transfer. The only difference is that you have to pay for paper checks (and the stamp on the envelope if you're mailing it), and electronic ACH transfers are free.