What does "Automatic payment" mean?

Definition

An automatic payment is a scheduled withdrawal from your bank account to cover a monthly bill, like a mortgage. It's a convenient way to ensure on-time payments.

Understanding Automatic Payments

Automatic payment is often set up during the mortgage closing process. It allows your bank to send your monthly mortgage payment directly to your lender. This means no need to remember due dates or write checks. Example: If your mortgage payment is $1,500, this amount is automatically transferred each month from your bank account to the lender. It's a convenient way to ensure payments are timely. It's not a guarantee against overdrafts, though, so keeping track of your account balance is still necessary.

People Want To Know

Can you set up automatic payments for a mortgage?

Yes, you can set up automatic payments for a mortgage. Most lenders offer this service, allowing you to schedule monthly withdrawals directly from your bank account to cover your mortgage payment. This ensures your payment is made on time each month.

What is the 3 7 3 rule in mortgage?

The 3-7-3 rule in mortgage refers to a guideline for mortgage payments. It suggests that a borrower should aim for a 3% interest rate, keep the loan term to 7 years, and ensure that the total monthly payment does not exceed 3% of their gross monthly income. This rule helps borrowers manage their mortgage payments effectively.

What is the downside of autopay?

Autopay can lead to overdraft fees if there are insufficient funds in your account on the payment date. Additionally, it may result in missed payments for changes in billing amounts or due dates if you do not monitor your account regularly. Lastly, canceling autopay can be cumbersome, potentially leading to unintended late payments.

What is the smartest way to pay off a mortgage?

The smartest way to pay off a mortgage is to make extra principal payments, which reduce the loan balance and interest paid over time. Refinancing to a lower interest rate can also help save money. Additionally, consider bi-weekly payments instead of monthly; this can result in one extra payment per year, accelerating the payoff timeline.

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More From The Mortgage Glossary

Balloon loan

A balloon loan is a type of mortgage with a large lump sum payment, called a balloon payment, due at the end of the loan term. This type of loan is considered non-traditional.

Biweekly payment

A biweekly payment plan involves making a mortgage payment every two weeks instead of once a month. This results in one extra full payment per year, helping you pay off your loan faster.

Break-even point

The break-even point is the moment when the money you've saved from a lower interest rate equals the upfront cost of getting that rate. This helps you determine if a particular financial decision, like buying mortgage points, is worthwhile.