Should You Set Up Automatic Payment for Your Mortgage?

by Kevin on January 29, 2012

One of the easiest ways to make sure your bills are paid on time is to set up automatic bill payment with each company that sends you a monthly bill. You won’t have to remember to write a check or mail an envelope. Depending on the type of automatic bill pay the company uses your bank account or debit/credit card will have payment applied from it every month. It really removes a lot of the hassle of having to remember to pay a bill. As convenient as automatic payments can be, should you set the same system up for your home mortgage?

Pros and Cons of Automated Mortgage Payments

There are upsides and downsides to using automatic payments with your mortgage, including some things you probably didn’t realize.

Pros of Automating Your Mortgage Payment

Setting up all of your bills to be paid automatically can take a load off your shoulders. You don’t have to worry about mailing in checks or wondering when each check will clear. The payment is sent, the bill is paid, and you can take tracking bills off of your task list.

Automatic payment on your mortgage is great because it virtually eliminates your ability to be late on a payment. This protects your credit score and helps you avoid late payment fees to the mortgage company. Automatic bill payment to your mortgage company also makes it easy to plan for when the mortgage payment will come out of your banking account. You’ll know that every month on the 1st day of the month the bill is paid, which makes it easier to plan to have money in your bank account to cover the transaction.

Cons of Automatically Paying Your Mortgage

While there are definite upsides to paying your mortgage automatically each month, there can be some significant downsides. As with any automatic bill payment you can tend to forget about what exactly it is you are paying. The money comes out of your account and you don’t inspect the bill very closely. This can lead to little changes in your payment going unrecognized. The only reason your payment should go up if you are paying it automatically would be if your real estate tax or homeowners insurance costs increased. It might seem insignificant, but it can be easy to miss a $100 annual increase when it is divided up over a 12 month period. Over time your costs could increase.

A second reason you want to be careful with paying off your mortgage automatically is you are locked in to that monthly payment until you make a change to the program. This can put a mental hurdle between you and adding extra money to the mortgage principal. If you paid the bill manually every month by writing a check you might be more encouraged to throw an extra $100 onto your payment when your finances allowed it. But with automatic payment the same amount comes out every month — meaning you might waste that extra money that could go toward the mortgage payoff. To combat this you can always set up your automatic payments to include extra principal payments, but that also can backfire in the months when money gets tight.

In short, automatic bill payment is almost always a good thing. But you can’t ignore the bill and you need to be aware of when you can afford to send in additional principal to pay off your mortgage loan faster.

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