Should you set up automatic payment for your mortgage?

automatic mortgage paymentsDirect debits and automatic payments have long been simple and fast ways to make payments. With a bank checking or savings account, you can set up an arrangement that authorizes payments to be deducted and transferred automatically from your account every month, on the day you have specified on your arrangement.

To compare, the direct debit and automatic payment have different approaches when it comes to payments. In direct debit, the amount will be taken from your authorized bank automatically whereas, in automatic payment, the payment is sent from your account. Before you choose one of these, here are a few advantages and disadvantages:

ADVANTAGES:

  1. Having a direct debit or automatic payment is more convenient. It definitely reduces your workload. More time is saved in writing checks, stuffing envelops and running around to mail it.
  2. There will be no worries about late payments. You can avoid hassles, and late fees and penalties.
  3. You save money by avoiding the postage necessary to mail the payment, and the possibility of late payment fees. Even if you put your payment in the mail 5 days before the due date, the mail can sometimes get delayed or lost, and you have to pay very stiff penalties.
  4. Building a history of on­time payments improves your credit. It will reflect that you are a good payer and a good consumer.
  5. It is more secure since your payments are made electronically. A proof of payment appears on your bank statement and on your next billing statement.

DISADVANTAGES:

  1. You need to maintain enough money in your bank account to cover the payment amount.
  2. Mistakes can happen.
  3. It can be expensive if there insufficient funds in your account. These can be NSF checking fees AND mortgage late penalty fees.
  4. It may be difficult to stop direct debit and automatic payments. It may be in violation of your original mortgage agreement.
  5. Check to see if there are any other fees from your lender.

And then there’s this cautionary tale:
A 2013 article in USA Today reported a contractor working on a foreclosed home discovered a mummified body — which was believed to be the remains of the homeowner, who had not been seen by neighbors for years — in the attached garage. The body of the woman, who was in her 40s, was tragically discovered Wednesday in the backseat of a Jeep in her garage, the article noted.

She is believed to have been dead since 2008. However, since she had $54,000 in her account and her bills were being deducted, she was never suspected to be dead. It was not till the money ran out and the house went into foreclosure that her remains were finally found.For years, no one came and went at the house. It wasn’t until the neighbors themselves had a problem with raccoons going in and out of the property, that they complained.By that time, the lender had taken back the mortgage and sent a repair man to fix the roof. Upon inspection of the property, the mummified remains of the former homeowner was found in the backseat of her vehicle, tucked away in the garage.

To limit some of the disadvantages and problems, set up a separate account for the mortgage payments. Begin the account with a balance to cover 2­3 months payments, then “pay” the account every month to replenish. Check the account regularly, and get to know your neighbors!