“…But if you paid the mortgage twice, we’d be out of money in our checking account…?” Was Monica’s inquisitive statement.
“Exactly.” – My response
Let me briefly set the table here.
We’re in the heart of December now. Christmas gifts, travel plans, party preparations, and a whole heap of other activities were on the mind (and the budget). Add that to the regular bills and responsibilities… I’m probably preaching to the choir here – we’re all busy, right? ’Tis the season!
I’m crying a bit to write this, but our student loan and mortgage payments only differ by a few cents. We take advantage of the automatic withdrawal functions for both but a recent refinancing of the student loans (blog post to follow next year) was done through a new lender, and hence a new website.
The combination of hectic season and a new system for payment had me a bit discombobulated (always good to find a place for that word). And frankly, my confidence of which payment is automatically withdrawn and when the payments are made was low.
So… I took a quick glance at a bank statement, saw one payment was made and that it felt like quite a while since another was made and thought, “I’d better pay this mortgage before ‘late fee’ or ‘penalty’ even come close to our account.”
With that, the manual payment was made. All was good and the mortgage was off my radar. So far off my radar that I didn’t notice the automatic withdrawal that took place 2 days later… (At least I was right that the mortgage should’ve been due sometime soon, right? – Silver lining).
Fast forward to a nervous examination of the family checking account and ensuing conversation with the team (Monica), and we’re caught back up to the intro.
I was equal parts frustrated, disappointed, and embarrassed. I thought to myself, “Dude… You’re this financial blogger guy that shouldn’t be making this mistake.” I knew right then that I’d have to write about this one.
Don’t worry, I turned this into a teaching moment. Once I came to find out that, A) people do make mistakes from time-to-time, and B) some people I know even made this mistake before, the burden was eased.
Back to the story:
Monica started putting it together when I made a simultaneous frantic dash to the phone and computer (bank’s website). …Searching, looking, scanning, … “Thank God! Customer support is still open.”
Like a superior team that had trained this drill many times before, Monica transitioned to 100% mom mode while I contemplated how to explain this faux pas to the unsuspecting representative soon to occupy the other line.
It all came together and I soon learned that paying the mortgage twice isn’t necessarily the account-draining event I originally suspected.
Here’s what I learned about the available options:
1) Panic, grit your teeth, and just take it.
Depending on the timing of payment, you may have just made your payment for next month a bit early. If you’re not too far off from the first of the month, or whenever your payment is due, there’s a decent chance this is processing and will post to your account like normal.
Not many options in that scenario. Hopefully, the checking account can handle the few-days-early withdrawal.
If paying a week early is going to be crippling, you may have to pull from savings or work some extra hours. Either way now is the time to make sure you’ve got a buffer in the checking account to soften the future blows.
Here’s a great article to help get you started.
2) Apply your double payment to principle.
For those with a healthy account full of surplus for situations just like this one, you can opt to apply this extra payment entirely toward principle.
What’s so great about this? If you take a look at past mortgage statements, the amount of a payment that actually goes toward debt (principle) can be shocking. Depending on loan structure, this could be less than half!!!
“So, where’s all my money going?” You may wonder. Typically, the majority flows toward interest while lesser amounts drift toward taxes and insurance. These all vary depending on loan structure, location, and timing so it couldn’t hurt to refresh your memory and take a look.
In our scenario then, paying an extra payment entirely on principle can have the effects of two monthly payments, or more.
If you can shoulder the burden, there are worse options.
3) Have your payment refunded, exhale, and pour 2 fingers of your spirit of choice…
Time for the deep breath we’ve all been waiting for???
If the payment was made early and in error, you can elect to have your cash refunded.
No returned Christmas presents, family visitors without heat, or canceled vacations. Phone call, dial tone, quick convo, and yadda-yadda: it never happened.
Although it’s nice to know this option exists (and it’s the one I chose), I think we’d all be better off working toward having option #2 as a realistic possibility.
To realize I paid twice and consent to being an idiot only, rather than a broke idiot, would’ve been more favorable of an experience. Sure, there are funds in savings and other accounts but those are bookmarked for other uses.
Having to recover from a 4-figure error can be a difficult obstacle if not properly prepared. That’s why the importance of an emergency fund and good financial discipline are key.
Here’s to a more informed and prepared 2017! Stick with MikedUp Blog and we’ll improve together.
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