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I am trying to setup my bills so I can be a little hassle free when it comes to paying them. The cost isn't so much an issue as me remembering to pay them in the first place.

Currently, I have been paying my mortgage each month online through my mortgage bank's website. Now I am wanting to set up an automatic withdrawl to make a bi weekly payment instead of a monthly payment along with some additional principal. The mortage bank has an automatic withdrawal feature which I can use although I am not sure if it accommodates a bi weekly payment. Also, my personal bank also has an online bill pay feature which I can use.

Is there a benefit to using my mortgage bank's auto payment feature vs. my personal bank's online bill pay feature?

Also, if I set this auto withdrawal through my personal bank, is there a way to dictate what is a principal payment and what is a mortgage payement?(I have not contacted either yet, but it was a thought)

  • Adding your country, etc might help – DukeLuke Mar 28 '16 at 19:29
  • I am currently in the US – MickB Mar 28 '16 at 19:32
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One factor to consider is timing. If you set up the automatic payments through the bank that holds the mortgage (I'll call them the "receiving" bank), they will typically record the transactions as occurring on the actual dates you've set up the automatic payments to occur on, which generally eliminates e.g. the risk of having late payments. By contrast, setting up auto-pay through your personal bank (the "sending" bank) usually amounts to, on the date you specify, your bank deducts the amount from your account and sends a check to the receiving bank (and many banks actually send this check by mail), which may result in the transaction not being credited to your mortgage until several business days later.

A second consideration (and this may not be as likely to occur on a loan payment as with a utility or service) is the amount of the payment. When you set up your auto-pay through the sending bank, you explicitly instruct your bank as to the amount to send (also, if you don't have enough in your account, your bank may wait to send the bill payment until you do). This can be good if finances are tight, or if you just like having absolute control of the payment. The risk, though, is that if some circumstance increases the amount that you need to pay one month, you'll have to proactively adjust your auto-pay setting before it fires off. Whereas, if you've set the auto-pay up through the receiving bank, they would most likely submit the transaction to your bank for the higher amount automatically.

I'll give an example based on something I saw fairly often when I worked for Dish Network on recovery (customers in early disconnect, the goal being to take a payment and restore service). If you had set up auto-pay through your bank based on your package price, and then the price increased by $2/month, you might not notice at first (your service stays on, and your bill doesn't have any red stamps on it), but the difference will slowly add up until it exceeds a full month's payment, at which point a late fee starts being assessed. From there, it quickly snowballs until the service is turned off. Whereas if you had set that auto-pay up through the provider, when the rate increased, they would simply submit an EFT for the new, higher amount to your bank.

On the opposite side of the spectrum: if you've set up the auto-pay through the sending bank, and you're not paying close enough attention when you finally pay off the mortgage, you might accidentally overpay by either making an extra payment or because the final payment is smaller than the rest. Then you'd have to wait a few days (or weeks?) for the receiving bank to issue a refund, leaving those funds unavailable to you in the interim.

For these reasons, I personally prefer to always set up automatic payments through the receiving bank, rather than the sending bank.

  • Do you know if the receiving bank applies the withdrawal immediately or waits until the end of the month? Asking in terms of interest which is why I am wanting to set up the bi weekly payment in the first place. – MickB Mar 28 '16 at 20:49
  • @MickB if the receiving bank is the one initiating the transaction, they will generally post it to your account as effective on the same day they initiate it. When the sending bank is the initiator, the receiving bank often sets the effective date as the date that they actually receive the funds. – Dan Henderson Mar 28 '16 at 21:25
  • @MickB, that might depend on the bank. I learned the hard way that for example Wells Fargo doesn't care the least if I send them my payment already two weeks early - they book it in the account for that day, but then still charge the interest for the complete month. And they do not point that out, you have to do the math yourself to find out. – Aganju Mar 28 '16 at 22:56
  • Good point, how the posting date relates to interest will depend on the specifics of the loan. But I'm quite sure that that detail would be the same, for a given posting date, regardless of which bank initiated the transaction. – Dan Henderson Mar 29 '16 at 1:24
  • Yea, it looks like the bank will still charge me for a full months interest regardless. At least I get the extra week of payments though. – MickB Mar 29 '16 at 17:05
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Depending on your bank you may receive an ACH discount for doing automatic withdrawals from a deposit account at that bank. Now, this depends on your bank and you need to do independent research on that topic.

As far as dictating what your extra money goes towards each month (early payments, principal payments, interest payments) you need to discuss that with your bank. I'm sure it's not too difficult to find. In my experience most banks, so long as you didn't sign a contract on your mortgage where you're penalized for sending additional money, will apply extra money toward early payments, and not principal.

I would suggest calling them. I know for my student loans I have to send a detailed list of my loans and in what order I want my extra payments toward each, otherwise it will be considered an early payment, or it will be spread evenly among them all.

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