After buying a house, there are a ton of things to do like changing the locks, painting and moving in. However in a frenzy, most new homeowners forget one important thing, setting up the necessary financial systems for paying the mortgage. I know this may seem like a no-brainer but hear me out because this is less about affordability and more about creating a simple process for making on time monthly payments.
The good news is that this applies to more than just the mortgage. Any large purchase you make will need its own financial “workflow”. This includes car payments and financing a timeshare.
Want to hear the truth? Having a mortgage changes your finances.
When I was living at home with my mom, I could afford to be spontaneous with my money but after buying a house I’ve had to rein in my spending. I also realized that my relaxed way of paying bills (often late) wasn’t going to cut it anymore. With that being said, I created a simple process for managing my monthly mortgage payments.
Step 1. Contact Lender
After closing, the first thing I did was contact my lender to better understand my loan terms. Specifically I wanted to know the things that I could and could not do.
Here are three questions I asked my lender:
- Can I make biweekly payments?
- When are payments considered late?
- Can I cancel the private mortgage insurance (PMI)?
When I called my lender, I found out two important things: 1) I couldn’t make biweekly payments and 2) because I had an FHA loan, I could never cancel the PMI. The only way that I can drop the mortgage insurance would be to refinance my FHA loan to a conventional mortgage.
Making biweekly payments is one of the easiest ways to save on interest and shorten your loan term, however, only a few lenders accept partial payments at no extra charge.
How I do it: Since I can’t make partial payments, I decided to make an extra payment every month instead. These extra payments are applied directly to the principal which helps pay off my mortgage faster.
Know Your Grace Period
Although mortgage payments are generally due on the first of the month, most lenders have a 15 day grace period. So technically you can pay your mortgage any day between the 1st and the 15th without incurring late fees.
Knowing your grace period may come in handy so call your lender and double-check when your payment is due.
2. Open a New Bank Account
Avoid commingling funds by opening a new bank account devoted solely to your mortgage payments.
Keeping my house money separate helps me avoid accidentally using it on other things.
Where To Stash Your Funds
Ally Bank is one of my favorite online banks because you can earn higher rates than many other savings accounts. Opening a new bank account with Ally Bank is also extremely easy. Ally offers plenty of savings and checking options including Online Savings, Money Market, and an Interest Checking account.
How I do it: Since I only use my account once a month, I decided to stash my money in an online savings account and nicknamed it “mortgage fund” so that at a glance I always know the purpose.
Remember in the U.S. saving accounts are limited to six transactions per month, anything above will incur a fee.
3. Set Up Direct Deposit/Auto-Pay
After opening a new bank account for mortgage payments, set up direct deposit with your employer. With direct deposit, every pay period a portion of my check automatically goes to my mortgage fund.
I could have also gone on to set up auto-pay but I prefer to log on and make online payments every month. Here I can check the numbers and track my repayment progress.
The other option would be to set up automated payments (or withdrawals) from your bank account to your lender.
In summary, contacting your lender and establishing a simple routine for your payments is a great way to ensure that you pay your mortgage on time every month despite whatever else is going on in your life. I’ve also found that the more automated the process, the more successful. Personally when it comes to finances, I like to set it and forget it as much as possible.
What are some of the things you’ve done to help you make on time monthly mortgage payments?