December 1, 2021
Having your mortgage payments automatically withdrawn from your bank account is not just convenient; it also means you’ll never have to face the negative consequences of late or missed payments.
Almost everyone makes a late payment from time to time. So it’s no big deal, right?
In fact, a late payment can be a bigger deal than you might think.
A recent survey found that almost 4 out of 10 American families (38%) paid late fees in 2020, averaging $119 per family. The survey also found that families who paid more than one late fee paid an average of $313.
But that’s not all. Late fees can cost you even more by lowering your credit score. The survey found that a drop of just 35 points—from a “good” score of 695 down to a “sub-prime” score of 660—can cost you up to $301 per year. That’s because a lower credit score often requires you to pay higher interest rates on loans, which means higher payments. With a lower credit score, you’re also more likely to have to pay other expensive fees (such as utility deposits) and higher insurance premiums. A low score can even limit your ability to get a job because employers often check applicants’ credit scores.
So what’s the single best way to avoid paying late fees—and possibly damaging your credit score? Experts agree: Make your mortgage payments using auto-draft.
Autodraft means setting up a regular payment that is automatically withdrawn (or “drafted”) from your banking account on a specific day of the month that you decide. (It’s sometimes called “autopay” or “ACH withdrawal.”) Then your payment is deducted from your account on the same day every month. After you set it up, it’s automatic—you don’t have to do anything else.
Autodraft offers great benefits (which we’ll see in a moment). But the idea can seem a bit scary. What if you don’t have enough money in your account when the withdrawal occurs? What if something happens and you need that money to meet an urgent need? Those are good questions. But after you read this brief article, hopefully, you’ll agree that the benefits of auto-draft far outweigh any potential disadvantages.
The good news is that auto-draft payments can help you in many ways:
When you pay by auto-draft, you never have to pay manually, which saves you time and effort. No writing checks, buying money orders and stamps, making phone calls, or visiting websites. And you don’t have to worry about mailing your payment far enough in advance to get to us before the due date. As long as you have enough money in your bank account, you’re good.
2. No late or missed payments.
With auto-draft, you decide which day of the month we withdraw your payment from your bank account. Autodraft works especially well if you depend on recurring deposits that go into your account on a specific day—such as government checks or regular paychecks. Tip: To help make sure there’s enough money in your account, set your auto-draft date for one or two days after a payday or other scheduled deposit.
3. No late fees.
When business closes on the 16th of each month (or the next business day after that), we’ll charge you a late fee if we don’t yet have your payment. But mortgage late fees aren’t like credit-card late fees (which run about $30 to $40). Mortgage late fees may be up to five percent of your past-due balance. So if your past-due mortgage payment is $1,600, then your late fee might be as high as $80. Read more about the list of all the fees we charge.
4. Nothing to remember.
After you set up auto-draft, you won’t have to worry about remembering to pay by a certain day. You won’t need to set alarms or reminders, and you won’t have to deal with the negative consequences of paying late—or even worse, missing a payment.
5. Secure payments.
Autodraft payments are completely electronic and highly encrypted, with no manual paper trail that thieves can intercept and steal information from (unlike, for example, a check-in your mailbox). Autodraft payments use the Automated Clearing House (ACH), a federally regulated electronic data network that American banks and merchants used to transfer about $62 trillion during 2020—which represents over 60% of all non-cash money transfers.
If you ever should have an issue with an auto-draft payment, your funds are fully protected under federal law. Just be sure to notify your bank about any problems within sixty days.
6. Helps your credit score.
Did you know that consistent, on-time payments are the primary factor the credit bureaus use to determine your credit score? Late payments can end up as negative hits on your credit report, but auto-draft payments can actually improve your score. That’s because negative information on your credit report gradually fades away as you consistently pay on time.
7. Easy set-up.
Setting up monthly auto-draft payments with Shellpoint is as easy as filling in a simple form. Just download our Automatic Payment Enrollment Form and follow the instructions. Want to pay bi-weekly? Download our Biweekly Automatic Payment Enrollment Form.
As with any system, the success of auto-draft payments depends on setting it up correctly and using the system properly. So be sure to understand these potential “gotchas”:
1. Have enough money in your account.
The biggest challenge with auto-draft payments is this: You need to monitor your bank account to ensure you have enough money to cover your payment on your due date. Otherwise, you could be facing overdraft fees from your bank (often as much as $35), as well as NSF (non-sufficient funds) fees and late fees from us.
Do you normally live paycheck-to-paycheck, with no surplus funds from week to week? Are you often concerned about having enough money in your bank account on the day your mortgage payment is due? If you answered “yes” to either of those questions, then you may want to avoid auto-draft payments until you’re in a better place financially. Learn how to set up and use a family budget to get your finances under better control.
2. Set it up correctly.
For auto-draft payments to work, we need accurate bank-account information. Unfortunately, one of the main reasons we see late payments is that homeowners have given us invalid auto-draft information. So when you set up auto-draft, always double-check your bank routing number and your bank account number to make sure you’ve entered them correctly.
3. Stay in control.
Be careful that you don’t fall into an “out-of-sight, out-of-mind” attitude about your auto-draft payments. Make sure you record every payment in your checkbook or budget app and don’t forget to read your mortgage statement every month (whether it’s online or on paper). Also, when you pay big bills by auto-draft (such as your mortgage payment), don’t lose focus on other bills that may not be automated (such as bills for water, garbage, electricity, or credit cards). Don’t throw your non-automated bills in your “to-do” basket—and then forget them.
4. Don't ignore mail from Shellpoint.
The fact that you pay automatically doesn’t mean you can stop paying attention to the mail we send you. For example, always check your statement to make sure your auto-draft payments have been withdrawn correctly. And don’t forget that mail from us may contain other important things you need to know—such as when your adjustable interest rate may be changing (for ARM loans), or if your latest auto-draft payment failed due to insufficient funds.
The bottom line? Paying by auto-draft is the single best way to avoid late fees and missed payments—which will save you money and help protect your credit score. Just be sure to set up auto-draft correctly and stay in control of your finances.