Mature Couple Sitting On Steps Outside House

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.

Common Mistakes

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.
  • 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.
  • Lastly, if you refi, and prefer to use online bill pay through your bank, make sure you update your new payment amount AND loan number. We do everything we can to make sure we apply your payment to the new loan, but verifying you are giving us the new and correct information upfront will ensure a seamless transition

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?

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This Post Has 41 Comments

  1. Hello,

    Is it better to make extra payments to principle only or add additional amount to the monthly payment in order to avoid paying as much interest as possible over the life of the loan, and just paying off the loan faster in general? Or do both methods result in the same amount of savings?

    Thank you for your time.

    1. Hi Dee:

      Either way will work and should save you the same amount. You just have to make sure that you specify that any amount over and above the payment that’s due is to go directly toward the principal. Otherwise, they may assume it’s for next month’s payment or a payment toward escrow.

      Thanks,
      Kevin Graham

  2. When it comes to prepaying my loan, which is better, prepaying the principle or the entire monthly payments?

    With about 84 months left on my mortgage I currently pay about $1,200 per month for principle, interest, and escrow. About $600 of that is principle. The rest is interest and escrow.

    If I add another $600 to make my monthly payment $1,800/month which is better, prepaying the principle or another mortgage payment?

    If my calculations are correct, the amount I would prepay in principle could instead be prepaid towards next month’s mortgage payment (including principle, interest, and escrow)

    So instead of paying $600 more each month for principle reduction, the $600 would pay for 1/2 of next month’s entire mortgage payment, including principle, interest, and escrow.

    If I take the amount I would prepay in principle $600/month, and instead prepaid $600/month towards another mortgage payment, it would equal taking $600/month off the remaining loan.

    Both situations would equal paying off the principle, or the sum of mortgage payments (including principle, interest, and escrow) at 1.5 times the normal rate.

    So in 56 months, if I paid $1,800/month total, I would have the entire principle paid off, or the entire mortgage payment paid off (including principle, interest, and escrow) for the remainder to the 84 months on my mortgage.

    So if I’m paying the same amount $1,800 per month in either situation, would it be better to prepay mortgage payments, instead of principle reduction, so that principle, interest, and escrow for the next 84 months are already prepaid also? If I put the extra $600 towards the principle, and paid the principle off early, I would still have to pay for the last 26 months escrow.

    1. That’s a bit of a complex math calculation and I know my limitations. I’m not sure of the answer to the question, but one of our home loan experts could certainly help you if you give us a call at (888) 980-6716.

      Thanks,
      Kevin Graham

    2. First off, when your loan is fully paid, you no longer have an escrow account with the lender, so your last sentence doesn’t make sense. You would NOT still have 26 months of escrow payments if you pay the loan off 26 months early. The fees that the lender pays from the escrow account on your behalf as a courtesy (taxes, insurance, etc) become YOUR responsibility when the mortgage is paid off and the loan is closed. In other words, they no longer handle your property tax and insurance payments when you don’t have a loan with them anymore.

      Second, you said “in 56 months… I would have the entire mortgage paid off… for the remainder of the 84 months of my mortgage.” This is completely wrong for two reasons.

      1) The simplest inaccuracy is that if you paid the loan in 56 months, there is no such thing as “the remainder of the 84 months”. After it is paid in full, the mortgage no longer exists. If you pay it off in 56 months, the loan is closed and there are no “remainder” months.

      2) 56 months is not the correct amount of time your extra payments would result in. Here’s why – As you make extra principal payments, each regular monthly payment is allocated more to principal and less to interest. That is because your monthly payment is fixed at $1,200, but the remaining principal you have to pay interest on will be decreasing faster than the original loan schedule – namely, by the additional amounts you paid. Therefore your loan is paid off faster not only by the additional payments, but ALSO by the constantly-accelerating principal allocation of your regular monthly payments.

      Here’s an example. If you have 84 months left at $1,200 per month, you are expecting to pay $100,800 over that time period. You must have then assumed a simple calculation of dividing that $100,800 by $1,800 to arrive at 56 months. But this is very, very wrong.

      Let’s assume, for simplicity, that your current balance is $41,000 and your interest rate is 6%. That would result in a payment of approximately $600 of principal and interest, which is what you have. We’ll ignore the escrow portion for now, because it doesn’t play into the following calculations. The principal / interest allocation on the next payment you make will be calculated like this:

      Interest = interest rate / 12 months x current balance (6% / 12 x $41,000 = $205)
      Principal = total payment – interest portion ($600 – $205 = $395)

      Then, the second payment would be calculated like this:
      Interest = 6% / 12 x ($41,000 – $395) = $203.03
      Principal = $600 – $203.03 = $396.97

      Notice how the interest portion of the second payment decreased by about $2 and the principal portion INCREASED by about $2? That’s because the balance that interest is applied to is reduced by each previous principal payment.

      Now let’s add in your extra $600. The calculations change to this:

      Month 1:
      Interest = Same as before ($205)
      Principal = $395 + $600 = $995.

      Month 2:
      Interest = 6% / 12 x ($41,000 – $995) = $200.03
      Principal = $600 – $200.03 = $399.97 + $600 = $999.97

      See what happened? By chipping an extra $600/mo off your balance in month 1, the interest portion of the second payment was reduced by an extra $3 compared to the first example, and the principal portion was INCREASED by an extra $3. If that sentence didn’t make sense, just go back and look at the numbers again.

      This effect carries onward for the rest of the loan term. Forever forward, that one single extra payment of $600 has reduced the interest AND increased the principal of EVERY payment by $3, because you’ve permanently decreased the ongoing balance by $600.

      But, and HERE’S THE IMPORTANT PART, every time you pay an extra $600, the interest is reduced and the principal is increased by ANOTHER $3 on EVERY payment after that! This is the snowball effect… Month 2, $3 extra is taken off the principal. Month 3, $6 extra is gone. Month 4, $9 extra is gone. By the time you make the final payment, $115 more will be allocated to the principal (and $115 less to interest) than if you hadn’t paid that extra $600 every month.

      So what does that mean? The total interest you’ll have paid will drop from $9,311 to $4,077 (saving you $5,234) and the length of the loan will be cut from 84 months to 46 months (not 56!).

      Now, you obviously have a different interest rate and loan balance than I guessed in my example. You should experiment with some online amortization calculators using your real numbers, with and without extra payments, to see in action what I just explained. Google “bankrate amortization” for an easy-to-use calculator.

      And finally, you have to pay the minimum $1,200 payment every month until the principal balance is zero, regardless of whether you send additional money (or how much you send). So there’s really no distinction between sending an extra $600 and calling it “extra principal” versus calling it “half of an extra payment”. They are effectively the same thing. Worse yet, you could get into trouble by assuming that paying $1,800 in month 1 and another $1,800 in month 2 means you can skip paying anything at all in month 3 because you made two “half payments”. No! Like I said, you HAVE to pay the minimum $1,200 per month regardless of whatever you paid in prior months.

      Side note: If you send extra escrow payments without a legitimate reason, the lender has to return the excess to you each year (by law), so that won’t do you any good as far as paying your loan faster or cheaper. Your principal and interest amounts aren’t affected by your escrow account at all.

  3. I have been looking at paying off my loan quicker. Is it possible to pay off my escrow account for the year and use the money each month that would have been going to escrow and use that as extra principle payment?

    1. Hi Jason:

      I think probably the easiest way to do this would be to just keep making your tax and insurance payment as normal and put whatever extra money you were going to put on paying off the full escrow toward principal. I would suggest doing it that way because it gives you flexibility if your taxes and insurance change.

    1. Hi Daniel:

      I’m trying to figure out what’s going on here. Unless you specifically had mortgage life insurance, it wouldn’t be put on the loan. The life insurance company would cut you a check and then you could choose to pay off the loan. I think you might be referring to the FHA mortgage insurance. That doesn’t pay off to you. That insurance is meant for the lender and FHA. It’s meant to as protection against default and in exchange, you get to make a lower down payment.

      My best advice for you to get information is to speak with whoever was servicing the loan about possibly taking over the payments. That would be your first step. I’m very sorry to hear about your wife.

      Thanks,
      Kevin Graham

  4. My wife passed after just taking over the loan on house a v.h.a loan we was going to have a refinance done and was told that ins.from loan payment to the loan was payed and bank didn’t put it on the loan how can I get more information on the loan an that don’t show good payment history to credit burea. I believe that this is fraud can you please help me with the information on how to get more details to the truth on this.

  5. I really like how the Quicken Loans statement has the space for applying extra payments. I pay extra every month, and should cut the life of my mortgage nearly in half.

    1. You’ve made our day, Raymond! We do aim to make it easy to make extra payments and save on interest. Comments like this make it all worth it!

  6. Hi I have a questions is paying personal check or one time draft is best practice for banks or mortgage company to accept payment from the borrower to paid the loan in full. Just curious cause of the :Good Fund Law Act is it applicable to paying off the loan? Thank you.

    1. Hi Lori:

      My advice is to talk to your lender or servicer if you happen to be in a payoff situation to see how they normally accept payment. If you happen to be with us, you can certainly get in touch with one of our Home Loan Experts at (800) 863-4332. We’ll be happy to take care of you.

      Thanks,
      Kevin Graham

  7. I have a loan with Quicken. I am paying the principal down quite a bit right now. At some point, can I ask for my loan to be reamortized over the remaining pay period, just with lower payments?

    1. Hi Anne:

      Thanks for choosing us! I’m going to have someone from our client relations team reach out to go over your options regarding re-amortization.

      Thanks,
      Kevin Graham

  8. Is there a limit of how much extra i can pay toward the principal? For example, I pay $962/month (principal + interest + taxes + insurance). Can i make an additional of $1000/month toward the principal? Are there limits, fines or fees for doing this?

    1. Hi Randy:

      Some lenders have prepayment penalties. Quicken Loans doesn’t have any, so there would be no penalty for doing this.

      Thanks,
      Kevin Graham

  9. Hi. I am about to have a mortgage with you guys and I have a question about the effects of paying extra on the mortgage. I fully understand the concept that an over-payment, unless applied to escrow, will generally reduce the amount owed and lead to a quicker payoff and less interest over the years. However, you also made mention about paying extra in order to get ahead in payments (“vacation”).

    Must a choice be made between these two things, or does an over-payment have both effects? For example, if I pay double one month, does it get immediately applied to the loan and push off future payments? If not, and I must choose between the two, what happens to an over-payment if I choose to have the over-payment applied to future payments? Does it sit in escrow and have no effect on paying down the loan until the time it is supposed to be paid?

    1. Hi Scott:

      First, thanks for choosing us! In terms of your regular monthly payment, if you wanted to add extra to pay down the principal, there’s a box you can check for that within MyQL. If you know you’re going to be going on vacation and want to make a payment ahead of time so you don’t miss the due date, you have a couple of options. You can call and make the payment over the phone at the number listed on your payment or you can pay through MyQL by making two payments on separate days.

      Thanks,
      Kevin Graham

  10. I received an check from my insurance company for an overage on my homeowners insurance. I just closed on my house a month ago. Is it normal to receive a check this early. And its made out to me. So does money need to go to my lender for escrow. Or is this something I cash and spend.

    1. Hi Melissa:

      I would check with your mortgage servicer to make sure your escrow is all set. It could very well be something you can cash and spend, but I would double check.

      Thanks,
      Kevin Graham

  11. I would like to enroll in online payment and to create an account I need QL account number. Where can I find it on my statement ?
    thanks

      1. I have a question. Our Mortgage company “accidently” sent us an overage check last year for about 550. Now they are taking that money back from what we have paid in since taxes where taken out. So is that legal? They said oh sorry that was our mistake can they actualy take the 550 back from us like they are doing. We have an overage of 380.00 this year because our homeowners insurance went up but we just sent in that our property taxes will be lower now. So I was wondering why our escrow account was so low when we had been paying it for six months and it looks like they took back the 550 and never told us about it until I got the suprise letter a few days ago

        1. Hi Kelly:

          I’m sure it depends on what it says they can do in your mortgage documents, but I’m going to refer this to someone who may be able to give you more information and any options you may have.

          Thanks,
          Kevin Graham

    1. Hi Debbie:

      You do need to have decent credit to get a home loan, but there are ways to improve your score pretty quickly if you do it right. Check out this blog post. I’m also going to have a Home Loan Expert reach out and see if we have any financing options that might fit your personal financial profile.

      Thanks,
      Kevin Graham

  12. I currently “self pay” my taxes & insurance – Is it possible to add the property taxes back to the loan & have them escrowed?

    1. Hey, Shannon. It is possible to add an escrow account to a mortgage that you are currently paying on. The specifics would depend on the company that services your loan. You will want to reach out to them to find out their policy. Have a great week!

  13. Can’t find your registration from the golf tournament as that YOU WOULD PAY
    OUR MORTGAGE payment for the year??

    1. Hey, Tom! Thanks for your interest in the Quicken Loans Hole in One Sweepstakes. You can go here for the chance to win one year’s worth of mortgage payments. You’d better hurry. The sweepstakes ends in September!

  14. Hi Quicken, I was wondering about making extra interest payments to our Quicken Loan. I know that at the beginning of a loan the payments are “interest heavy” anyway and our loan is a relatively new Refi. But for tax purposes, I was wondering if I made extra interest payments if Quicken would do that, and would knock off interest I owed on the loan as I paid? The reason I am asking is our taxes last year were very high. Due to life changes (last child graduated from college) and not many other deductions, this was a suggestion from our finance company.

    1. The good news is Quicken Loans has no pre-payment penalties, which means any money that you contribute above and beyond your regular monthly mortgage payment will be applied toward principal. This will ultimately reduce the amount of interest you pay over the life of the loan. Check out our amortization calculator to see how extra money paid now can save you money years from now.

  15. We recently have a new mortgage and it looks like the mortgage company is in the dark ages because the only way they can receive payments is by check. Last time (only the second time we paid) a check was made by our bank and the money did come out of our account but the mortgage company says they never received anything. We are now getting them a new check. The mortgage is not being very friendly about this and says it will let it slip this one time. We are very upset about this because clearly the fault is not with us but either with the mortgage company or with US mail. What are the legalities around this?

    Thanks!

  16. I had showed interest in simply obtaning information on the Mortgage process, and heard stellar reviews about Quicken. Today I was contacted by the office in Oklahoma, and a Mortgage Banker named Cody”, was not only so overly aggressive and rude, he proceeded to tell me that I didnt know what I was talking about and my partner who is a Professor at the University of Oklahoma-Law School and Department of Economics was an idiot. Further my partner, is a consultant to the Fair Issac Corporation, FICO, and has told me repeatedly what we need to start doing. He went on to say that my partner doesn’t know anything, its irrelevant what he does for a living, despite the fact he consults for FICO, he didn’t go to Mortgage school.

    Ill never do business with Quicken, not with people like that. Reminds me ironically of what people reported about Countrywide, history tends to repeat itself.

    1. I called Quicken for a VA mortgage that my fiancé was trying to get to buy my house & put it in his name, a rep I talked to said he couldn’t do it because it was perceived as a “bailout”…..very rude person..In the end he did get a mortgage from VA united. Rude people!!

      1. Hi, Sonja,

        I do apologize that you had this experience with one of our home loan experts. Our client relations team is looking into this now to understand what happened and will be reaching out to assist.

        Again, I’m sorry to hear that this happened and we are looking into this now.

        Best,

        Kollin Currie

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