Do Mortgage Payments Come Out Automatically?

Paying your mortgage every month is an essential part of being a homeowner For many people, having the mortgage payment automatically withdrawn from a bank account can be a convenient option. In this article, we’ll look at how automatic mortgage payments work and the pros and cons of setting them up

How Do Automatic Mortgage Payments Work?

With automatic mortgage payments, the lender withdraws the amount owed for your monthly mortgage directly from your bank account on a recurring basis Here’s a quick rundown of how it works

• You provide the mortgage lender with your bank account information and authorize them to withdraw the monthly payment This is usually done when you first get the mortgage but can be set up later

• The lender will withdraw the payment from your bank account each month on the specified due date. For most mortgages, this is on the 1st of the month.

• The amount taken out is the total monthly mortgage payment including principal, interest, taxes, and insurance (PITI). Any extra escrow needed to cover changes in taxes and insurance may be added as well.

• If there are insufficient funds when they attempt the automatic withdrawal, you may face overdraft fees from your bank and late fees from the mortgage lender.

• You can cancel the automatic payments at any time by contacting your lender if you decide you no longer want to use this option.

So in short, yes mortgage payments do come out automatically each month once you set up this arrangement with your lender. It aims to make paying your mortgage easier by having it directly debited without you having to do anything.

Pros of Automatic Mortgage Payments

There are some nice perks to setting up automatic mortgage payments:

• Convenience – It’s an easy “set it and forget it” approach. No need to manually make payments each month.

• Avoid late fees – The payment comes out on time so you don’t risk getting hit with late charges from the lender.

• Consistency – Regular automatic payments help build a habit of reliably paying your mortgage.

• Lower foreclosure risk – Lenders like when borrowers opt into automatic payments. It shows you are committed to making timely payments and less likely to default. This can help if facing financial hardship later.

• Interest savings – Making payments every two weeks instead of monthly can shave years off a mortgage by paying it down faster. More of the payment goes to principal when you make bi-weekly automatic payments.

• Peace of mind – Not having to remember to pay each month gives certainty the mortgage is being handled.

Cons of Automatic Mortgage Payments

However, there are also some drawbacks:

• Account errors – If your bank account number or amount changes, the payment won’t go through correctly unless you notify the lender.

• Lack of control – You have less control over the exact timing and amount of the mortgage payment.

• Overdraft risk – If the account balance is too low when payment is withdrawn, overdraft fees can result.

• Difficulty stopping – You’ll need to contact lender several days in advance to stop a scheduled automatic payment.

• Relationship changes – If you close the bank account, you have to immediately update your lender with new details to avoid missed payments.

• Less flexibility – It’s harder to adjust the payment dates or amounts compared to manually making payments.

Overall, automatic mortgage payments provide a convenient way to pay your mortgage on time every month. However, you lose a bit of control and flexibility. Pay close attention to account balances to avoid overdrafts and keep lender informed if account details change. While most find automatic payments helpful, weigh the pros and cons to decide if it fits your financial situation.

How to Set Up Automatic Mortgage Payments

If you want to put your mortgage on autopilot, here are some tips for establishing automatic payments:

• Contact your lender – The first step is to get in touch with your mortgage lending institution. This is usually the bank or company you obtained the mortgage loan through.

• Fill out authorization form – They will have you fill out a form with your authorization to make the automatic withdrawals each month from your specified bank account.

• Provide account information – You will need to provide your full account number and the bank routing number so they can properly debit your account. Double check this information is correct.

• Select date – Choose which day you want the mortgage payment withdrawn each month, typically the 1st or a date shortly after.

• Pick frequency – Decide if you want payments monthly, every two weeks, weekly, etc. Making payments more than once a month can help pay off your mortgage faster.

• Confirm setup – Your lender will confirm when they’ve got everything established on their end to start making the automatic payments from your bank account.

• Monitor account – Be sure to still monitor your bank balance to make sure sufficient funds are available when the mortgage payment gets withdrawn each month.

Once you complete these steps, your monthly mortgage payments will now be automatically deducted going forward. Contact your lender immediately if you need to adjust or cancel the auto payments in the future.

Alternatives to Automatic Mortgage Payments

Some other options beyond automatic payments for paying your mortgage include:

• Manual online payments – You can sign up through your lender to pay online yourself each month instead of on autopilot. This gives you more control while still being convenient.

• Mailed check – The old-fashioned way is mailing a paper check to the lender each month. This works if you like the manual approach.

• Your bank’s bill pay – Many banks let you set up mortgage payments through their own online bill pay platform. This withdraws funds from your account to send to the lender per your instructions.

• In-person payments – Some lenders allow you to pay in cash or check by visiting a local branch each month. This gives you an in-person option.

• Money orders – Getting money orders made out to your lender is another way to mail in or drop off mortgage payments if needed.

So you have choices on how to pay your mortgage beyond just automatic payments. Pick the option that aligns with your preferences.

When Are Mortgage Payments Due Each Month?

Mortgage payments are usually due on the 1st of each month. However, the exact due date can vary:

• For conventional mortgages, the due date is typically the 1st of the month.

• FHA and VA mortgage payments are often due on the 1st as well.

• USDA mortgages tend to have the 1st or 15th as the due date.

• Jumbo and adjustable rate mortgages frequently have payments due on the 1st too.

Your specific due date is set when you first obtain the mortgage loan. It will be outlined in your mortgage documents and amortization schedule. When you enroll in automatic payments, you can choose to have the funds withdrawn on your actual due date or a few days before.

Most lenders offer a 15-day grace period after the due date before they consider the payment late. However, some lenders provide 10 days of wiggle room or less. The grace period should also be detailed in your mortgage paperwork.

If your due date falls on a weekend or holiday, the payment won’t be reported as late as long as it’s made by the first business day after. Communicate with your lender if an emergency arises that will prevent you from paying on time in a given month. They have options like forbearance to explore that can help avoid default or foreclosure.

Steps for Canceling Automatic Mortgage Payments

Looking to cancel your automatic mortgage payment arrangement? Here is how to go about it:

• Contact lender – Get in touch with your mortgage provider via phone or email and state you want to stop auto payments. Do this at least 3 business days before the next withdrawal.

• Fill out form – They will have you complete a cancellation form to make it official. Some lenders allow you to do this online through your account dashboard.

• Pick new payment method – You will need to choose a new way to pay going forward – online bill pay, checks by mail, in person, etc. Discuss options with them.

• Confirm cancellation – Wait for written confirmation from the lender that your request to cancel automatic payments has been processed.

• Update payment timing – Adjust the timing of your new manual payments to ensure no gap between when auto payments stop and the new method starts.

• Watch for final auto payment – Monitor your account to see when the final automatic payment gets withdrawn so you know when to begin your new approach.

• Start new method – Once auto payments are canceled, begin using your new payment method you chose – online, in person, mail, etc.

Following these steps allows you to smoothly transition off of automatic mortgage payments if needed. Be diligent in continuing to pay on time going forward using your new payment method.

Troubleshooting Late or Missed Automatic Payments

No one wants to deal with the stress of a late or missed mortgage payment. If your automatic payment doesn’t happen as expected, here are some troubleshooting tips:

• Check account balances – Make sure your bank account had enough funds for the mortgage payment transfer. Low balances are the most common culprit for missed auto payments.

• Verify account information – Confirm your lender has the correct account and routing number on file, and that your account is still active. Incorrect details lead to failed payments.

• Review payment activity – Carefully inspect your bank account’s payment history to confirm when the mortgage payment was withdrawn. In some cases, it’s just delayed a few days, not completely missed.

• Contact lender immediately – Get in touch with your mortgage provider to alert them of the issue and understand the ramifications. They may waive late fees if notified promptly.

• Ask about workarounds – Inquire if a one-time online payment can be made to get caught up or rush delivery of a paper check. Act fast to avoid further late penalties.

• Update information – If your bank account was closed or changed, immediately provide updated details to your lender to avoid future hiccups.

• Consider new method – If automatic payments continue to be problematic, opt to change to an alternative payment method that works better for your situation.

Staying on top of your account balances and mortgage payment activity is crucial for avoiding issues with automatic payments. Act quickly when a potential problem arises to prevent costly late fees.

Is an Automatic Mortgage Payment Required?

Lenders often encourage setting up automatic mortgage payments to ensure timely payment each month. But it is rarely an absolute requirement. Here are some key points on whether auto payments are mandatory or not:

• Usually optional – Most lenders do not force homeowners to use automatic mortgage payments. Conventional, FHA, VA, USDA loans typically don’t require it.

• May improve loan terms – Borrowers who agree upfront to automatic payments may qualify for better mortgage rates or terms compared to manual payment methods.

• Easier to budget – Lenders sell it as a tool to help homeowners budget effectively and avoid late payments by taking the guesswork out of paying monthly.

• Provides payment assurance – For higher risk borrowers with lower credit, lenders may push automatic payments to ensure regular on-time payment and reduce risk of default. But often still optional.

• Can be canceled later – Even if you agree initially to automatic payments to get better loan terms, you usually can cancel the auto payments later if needed.

Unless explicitly stated in your mortgage documents, signing up for automatic payments is generally voluntary, not obligatory. However, declining it could mean getting slightly less favorable loan terms in some situations. If you do enroll but later want to stop auto payments, you can normally cancel the arrangement by contacting your lender.

The Bottom Line

Setting up automatic mortgage payments can provide a convenient, hassle-free way to pay your mortgage each month. It helps ensure payments arrive on time, avoiding late fees. But it also comes with risks like overdrafts or difficulty adjusting amounts. Look at both the pros and cons to decide if it aligns with your financial priorities. Communicate closely with your lender if needing to cancel, change, or troubleshoot issues with auto payments. When used properly, automatic mortgage payments take the stress out of making sure one of your biggest monthly bills gets paid.