Are Automatic Mortgage Payments a Good Idea?

Read Time: 4 minutes

Late mortgage payments can significantly impact your credit score. They can also lead to penalty fees, increased interest rates, and eventually foreclosure.

Automatic payments, or autopay, can be a smart way to “set it and forget it” and pay your bills each month without doing much work.

What is Autopay?

Autopay, short for automatic payment, is a service provided by banks or financial institutions that allows you to automatically deduct funds from your account to pay bills or expenses, such as mortgage payments, on a predetermined schedule. Once set up, the agreed-upon amount is withdrawn from your account without requiring manual intervention each time a payment is due.

Automatic withdrawals from your bank account can be set up to pay for internet services, subscriptions, phone, credit card bills, and even mortgage payments.

What Does Draft Day Mean On a Mortgage Payment?

“Draft day” is the day of the month when money is electronically withdrawn or drafted from your bank account to pay your mortgage.

This date is determined when you set up automatic payments with your mortgage lender or service provider.

How to Set Up Autopay

Most mortgage providers allow automatic mortgage payments that repeat every month and take out the same amount of money on the same day from your checking or savings account to pay your mortgage bill.

You can typically set up automatic payments through your mortgage provider’s online portal if available.

Once you have access to your mortgage servicer’s online portal, you can follow the following steps:

1. Log into your account online or through the mobile app

The first step is to log into your mortgage provider’s online account. If you are used to making your mortgage payments by phone, mail, or in person, you can contact your lender by phone with steps for getting set up with their online portal.

2. Choose “set up autopay” or “recurring payments”

Your mortgage servicer might not use these terms exactly, but an automatic payment option should be labeled fairly close to this or under a “Payments” option.

3. Choose a payment method

Decide which account or payment option (checking, savings, credit card) you want the funds to be withdrawn from. Making mortgage payments with credit cards typically have the highest service fees, while making mortgage payments through an e-check typically have the lowest.

4. Provide authorization

To link your chosen payment method, you’ll likely need to fill out a form or provide authorization online. This usually includes adding details like your account number, routing number, the payment amount, and the frequency of payments (monthly, bi-monthly, etc.).

5. Verify and confirm

Review the information you’ve entered to ensure accuracy, especially the payment amount and frequency. Once confirmed, your autopay should be set up. You should receive a confirmation via the same method you receive your statements from.

Pros of Automatic Bill Payment

For most, autopay is a convenient way to make sure you aren’t late on mortgage payments. However, it isn’t for everyone.

Preventing late payments

One of the best things about autopay with your mortgage is that you’ll never be late paying that bill. That means no more late fees — if you ever had them — and you won’t have to go through the hassle of mailing a check or remembering to pay it. Once set up, you don’t need to remember payment due dates or manually initiate payments.

Not having late payments can improve your credit score since payment history is the most significant factor in determining your credit score.

Added security

Because automatic payments are done electronically, they’re encrypted throught the same techniques banks use to secure customers’ information.

Autopay also reduces the possibility of human error in writing checks, addressing envelopes, or including incorrect payment amounts, which can happen when paying bills via mail.

Other benefits of autopay include not having to buy stamps for electronic payments, not writing physical checks and thus not paying for checks to be printed, and saving time. Autopay can also be set when refinancing a home loan.

Cons of Automatic Bill Payment

If you’re living paycheck-to-paycheck and are unsure if you’ll have enough money in your bank account on the day your mortgage payment is automatically withdrawn, then you probably want to avoid autopay. That’s a big bill to miss and can leave your account overdrawn or the mortgage not paid, leaving you with penalty fees from your bank and mortgage lender and overdraft charges.

Additionally, sticking to a payment schedule may make it difficult to make extra mortgage payments when you have extra money.

You still have to monitor your statement

Autopay can leave you out of touch with your mortgage and your money. Along with making sure your mortgage amount is listed on your checkbook payment schedule each month, you’ll want to continue reading your mortgage statement each month — either online or with a paper statement.

Knowing that a bill is paid shouldn’t tempt you to recycle or throw away a bill without opening it.

You’ll receive a statement from your lender if your adjustable mortgage rate will be changing soon or if your automatic mortgage payment is denied due to insufficient funds. You want to keep an eye out for any statements so you don’t miss these alerts.

Automating big bills such as a mortgage can also leave you a little lax in paying bills that aren’t automated. Water, garbage, power, and internet service bills are all essential, and if they’re not automated, you may set them in your “to-do” basket and forget about them. Missing the due date on manual bills will lead to bill reminders and could lead to services getting cut off until payment is made.

To ensure autopay is done right, set up electronic alerts from your bank to email or text you when a bill is due or paid. The last thing you want is a low or overdraft checking account because you forgot about your autopay bill.

Kara Johnson

Kara is a Rye, New York-based author and contributing writer for Refi.com. She is a graduate of Hampshire College.

Get Approved to Refinance at a Great Rate

Get Started