Once you close your loan, and you “just” have to make your monthly payments, you’re on easy street, right? No more collecting documents, looking at homes, making phone calls or anything else. You send in that check every month and everything is hunky dory.
Well, maybe or maybe not. There are a variety of ways your mortgage payment can be made, as well as misapplied. Our team members who handle payments put together a list of some common mistakes that are made and how to avoid them. They generally come down to making sure you clearly communicate what you’re intending to do with the money you’re sending in.
Sending in extra money without explaining what it’s for
Not that Quicken Loans will complain if you send in extra money, but there are a few different things you could be doing – prepaying before vacation, paying down your principal or adding money to your escrow account. Without your guidance, it’s just a guessing game for us.
Putting a note in the memo section of your check
You may think you’ve been explaining what your money’s for on your check, but depending on who your lender is (e.g. a bank or specifically mortgage institution), they may not have visibility into these notes.
Forgetting to add your loan number on your check
Maybe you have multiple loans with your lender, or maybe a family member is paying on your behalf one month. Either way, it’s best to include the loan number that you’d like the funds to go to, because, unlike notes on your check, whoever is collecting your payments – the lender or the bank the lender works with – will be able to use that information to correctly apply your payment.
Using a bank deposit slip instead of an actual check to make a payment
Sorry, you’re giving money to, not taking it from, your mortgage (unless you have a reverse mortgage). When setting up recurring drafts or making a payment, ALWAYS send a check, not a deposit slip.
Not understanding the difference between recurring payments through your lender and bill pay through your bank
At Quicken Loans, you can set up recurring mortgage payments (sometimes called auto draft or auto pay) with us or set up bill pay through your bank. Make sure you’re clear on which one you’re using. For example, if you set up recurring payments, Quicken Loans will draft (pull) your monthly payment. If you have online bill pay, your bank sends the money every month. The problem is, if your payment changes for any reason (typically due to an increase in escrow, tax and insurance), your online bill pay will NOT know about the change and then your payment will be under or over the correct amount. On the other hand, a recurring draft with Quicken Loans will account for the payment change and collect the right amount of money.
Mortgage Payment Tips
If you read the above, the pro tips could be boiled down to that cornerstone of all good relationships: communication. But let’s look at them in a little more detail.
- If you haven’t already, think about setting up recurring payments. If your mortgage is with us and you’re set up for recurring payments, your payment will never be late or short. A mortgage payment can change if your escrow payment – taxes and insurance – changes. It can also change if you have an adjustable rate mortgage (ARM).
- If you’re going to change your payment pattern, like if you’re prepaying before vacation, call your lender and explain your payment.
- If you plan on sending in extra money every month, call your lender beforehand to explain how you want those funds applied. Are you paying early, adding to your escrow account or trying to pay your loan off early by paying extra money on the loan principal (called making a curtailment)?
- Again, some clients like to pay a little extra every month by rounding their payment to the nearest dollar. Call before you do this so your lender can make sure the extra goes to the right place.
- Maybe you got a raise, end of the year bonus or tax return check, and you want to make an extra one-time payment? Can you guess what I’m going to say next? Give your lender a heads up so that money gets applied the way you want.
- Lastly, verify with your bank that your funds have actually been taken out of your account. It can take up to a week for funds to be taken from your bank account. Keeping this in mind could help prevent a possible overdraft.
The reason I sound like a broken record is because the one mortgage payment you make every month is a combination of a few different things that can fluctuate.
Reasons for Paying Extra
If you have an escrow account, you pay into it every month so that when it’s time to make a property tax or insurance payment, you’ve got enough money saved up. Property taxes can change sometimes, which will make your monthly payment change as well.
Some people like to pay extra into their escrow to make sure they don’t get an unpleasant surprise later on. Then, if you happen to overpay your escrow account, you’ll get an overage check from your lender so you’re not losing any money in the long run.
The other common reason to pay extra is to pay off your mortgage faster. An amortization schedule is the schedule of payments that you would have to make for the term of your mortgage to pay it off, or amortize, your loan at the end of the term. If you pay more than the minimum amount, your mortgage will amortize faster, which will get you out of debt and could save you thousands of dollars in interest. You can use the Quicken Loans Amortization Calculator to see how different payment amounts would help pay off your loan sooner, and how much interest you’d save in the process.
Both paying extra on escrow and making extra payments can be good ideas based on your goals and needs, but if you just assume your lender can read your mind, the extra money you send in might not get applied the way you want. So if you want your mortgage payment process to go smoothly, be very clear about what you’re doing.
What are some of the payment mishaps or questions you have?