Dear Mr. Azrael:
I purchased a home in Aberdeen in January.
The first payment was due March 1. I set up an allotment through my employer whereby $700 each pay period (alternating Thursdays) would go directly to the lender's bank. This amount included approximately $20 over the payment amount to be applied to my principal.
The first allotment went out Feb. 5 and the second went out on Feb. 19, thereby ensuring my payment was received in advance of its due date.
In the meantime, my mortgage was sold to another company. Since then, I've had a multitude of problems because their computers don't recognize my payments and automatically credit them to my principal. That leaves me short when the payment is due, resulting in late fees.
Furthermore, my account isn't being credited in a timely manner.
Company representatives have told me that this will remain an ongoing problem unless I pay a $200 setup fee to make the change and a monthly fee to have them withdraw funds from my account and use them as an accelerated payment.
I was under the impression that when you made payments in advance of the due date, your interest total was reduced accordingly.
Can they force me to change my current payment system for their convenience? Are there any laws in Maryland to protect consumers in this area?
By paying one-half your regular monthly mortgage payment every two weeks, you can substantially reduce your interest costs over the life of the loan.
The reason: if the lender immediately credits each half of the monthly payment upon receipt, you will make one extra monthly payment over the course of a year. This extra payment is applied against principal and allows you to pay the loan off faster.
If the mortgage initially was set up as biweekly with the original mortgage company, the new lender must honor those terms.
Your lender, apparently, will credit biweekly mortgage payments immediately if you pay an initial fee and authorize direct payments from your checking account.
You should make sure biweekly payments will be credited immediately if they are made directly by your employer. You also should make sure there are no monthly fees or charges assessed by the lender for accepting bimonthly payments. It may be worth the one-time $200 setup fee to achieve interest savings over the life of your loan.
You can achieve the same benefit by paying an extra one-twelfth of your monthly payment each month and instructing the lender to apply the extra money to the loan principal. If your monthly payment is $1,200 and you pay $1,300 each month, you will have paid an extra month's payment over the course of a year.
In your situation, my advice is to either pay a one-time $200 fee to set up a biweekly payment plan or pay only once a month and include one-twelfth of your monthly mortgage amount as a prepayment against principal.