Avoid Automatic Withdrawal System Penalties
I recently established a new home equity loan. I signed up for the automatic withdrawal plan. My payment would be withdrawn from my checking account on a certain day of the month and I would save a quarter point on my interest rate. I also saved a quarter point for another reason as well.
The first payment due date rolled around and hit on a Saturday. My mortgage holder and bank, which happens to be Bank of America, did not process the payment on Saturday.
I phoned on Saturday to check on it and they could not contact the Home Equity Loan department. They were supposed to be at work, but no one answered the phone when other bank employees tried to hone them? Must have been a Saturday pool party at the bank . . .
I phoned back on Monday and they informed me that the payment could not be made on a weekend in their system. Translation: Someone somewhere in the bank had to process a batch file manually and that wouldn’t happen till Monday. Hence my payment would not show up until Monday at 7 PM.
Interest Charges on the Loan
That raises the potential for miscalculation and possibly abuse by the bank. They could conceivably charge me interest for the time from Saturday till Sunday and then Sunday to Monday.
Two days of interest on a Home Equity Loan. They do compound daily so over time that could add up. For a single incident, that means I would pay $19.73 if I had a loan of $40k at 9% interest (40,000 x .09 x 2 days / 365 days for the year).
If a Saturday payment occurs 2 times per year and I pay this loan for 20 years, that would total up to ($19.73 x 2 x 20) $789.04 plus the interest charged on this interest!
Bank of America Resolution
Bank of America informed me that they would back date the transaction from Monday to Saturday, and so I would not be charged the interest.
I won’t know if that is correct until this evening, but you can bet I will be paying attention!
You should check as well if you have an automatic withdrawal. An extra $500 - $1,000 over the life of your home equity loan is not insubstantial. You should check to insure that your bank is not over charging you and that they have provisions to back date appropriately.
