Pros and Cons of Automatic Mortgage Payments
Automatic payments, or autopay, can be a smart way to “set it and forget it” and pay your bills each month without doing much work. The automatic withdrawals from your bank account can be set up to pay for internet services, subscriptions, phone, credit card bills and even mortgage payments.
Along with accepting payment by check, over the phone and online, many mortgage providers also allow automatic mortgage payments that repeat every month and take out the same amount of money on the same day from your checking or savings account to pay your mortgage bill.
Autopay has plenty of upside, along with some downsides that should be considered. Here are some to be aware of for automatic mortgage payments:
Pros of automatic bill payment
One of the best things about autopay with your mortgage is that you’ll never be late paying that bill. That means no more late fees — if you ever had them — and you won’t have to go through the hassle of mailing a check or remembering to pay it.
Not having late payments can improve your credit score, since payment history is one of the biggest factors in determining a credit score.
Automatic payments are easy to set up. They can often be set up online through your mortgage company or there may be a section of your paper bill to set up autopay.
When setting up autopay for a mortgage, check if you can adjust or cancel your automatic payments, and how easy that is to do. Also check if you can choose the withdrawal date. Once set, the withdrawal date may not be allowed to be changed.
Some mortgage lenders allow automatic mortgage payments to be automatically adjusted if there’s a change in your escrow or interest rate.
If your mortgage lender doesn’t easily let you set up automatic payments, you can probably do it online through your bank and set up recurring transfers.
Because automatic payments are done electronically, they’re encrypted and should be the same techniques banks use to secure customers’ information. They should at least be safer than mailing a check.
Other benefits of autopay include not having to buy stamps for electronic payments, not writing physical checks and thus not paying for checks to be printed, and saving time. Autopay can also be set when refinancing a home loan.
Cons of automatic mortgage payments
Not having enough money in your checking account to make an automatic payment for an annual magazine subscription is a minor inconvenience compared to being short on funds when an automatic mortgage payment is due.
If you’re living paycheck-to-paycheck and are unsure if you’ll have enough money in your bank account on the day your mortgage payment is automatically withdrawn, then you probably want to avoid autopay. That’s a big bill to miss and can leave your account overdrawn or the mortgage not paid, leaving you with penalty fees from your bank and mortgage lender, and overdraft charges.
Sticking to a payment schedule may make it difficult to make extra payments on your mortgage. While banks are always happy to accept your money, having autopay may require calling the bank or taking a few extra steps if you want to make an extra payment on the principal balance if you come into a windfall.
Autopay can leave you out of touch with your mortgage and your money. Along with making sure your mortgage amount is listed on your checkbook payment schedule each month, you’ll want to continue reading your mortgage statement each month — either online or with a paper statement
Also check the statement to make sure the last autopay for your mortgage was done correctly. Did the lender accidentally withdraw a payment twice or add a zero to the amount charged and take out too much money?
Knowing that a bill is paid shouldn’t tempt you to recycle or throw away a bill without opening it. A statement from your lender will alert you if your adjustable mortgage rate or other terms are changing soon, or if your latest automatic mortgage payment was denied because of insufficient funds.
Automating big bills such as a mortgage can also leave you a little lax in paying bills on time that aren’t automated. Water, garbage, power and internet service bills are all important, and if they’re not automated you may set them in your “to do” basket and forget about them. Missing the due date on manual bills will lead to bill reminders, and ultimately could lead to services being cut off until payment is made.
To make sure autopay is done right, set up electronic alerts from your bank to email or text you when a bill is due, paid and when your balance is running low. The last thing you want is a low checking account balance when a mortgage bill is about to be paid automatically.