Years ago when Clark had his first home, he tells the story of how the mortgage was sold off by the lender and the result was a dispute about the balance.
The consumer champ contended he owed around $3,000 less than the new servicer of his mortgage claimed!
"I had to prove my point by finding all my canceled checks," Clark says. "I also had to buy a book with an amortization table that allowed me to crunch the numbers myself. Obviously, this was in the pre-Internet days."
Now that we're in the era of computers, we assume the balances that lenders are tracking will be accurate. But they're not necessarily. If your mortgage changed hands recently, this is not a time to blindly trust your lender when they report a mortgage balance.
Errors can easily be made when loans are sold, or banks are absorbed by other banks and there's a migration of records. The balance can be all fouled up—and almost always the error is not in your favor.
What can you do to protect yourself?
Thankfully, it's very simple to ensure you're tracked correctly. Print out an amortization schedule for free at DinkyTown.net or HSH.com.
It is imperative that you keep proof of all mortgage payments throughout the entire life of your loan. That avoids the danger of your payments being misapplied to another loan.
"Banking—much like life—gets messy and is not always completely accurate," Clark says. "In this case, it's not that the banks are trying to cheat you; it's just that their record-keeping is incompetent."
Want to really slash years off your mortgage? Try this!
Have you received an offer in your mailbox promising that you could save $10,000, $20,000 or even $30,000 on your mortgage by getting set up on a bi-weekly payment plan? It sounds appealing, but there's a much smarter way to approach bi-weekly payments.
Banks team up with appointed marketing companies to send out these solicitations and to collect bi-weekly mortgage payments. Very often there's a charge of $200-$400 to set you up on a bi-weekly payment plan. The marketing company may also charge a few dollars each time you make a bi-weekly payment, which is half of your monthly payment every two weeks. (The bank gets a split of all profits.)
Now, on the upside, the math behind this idea works. Pre-paying a mortgage early in a 30- or 15-year cycle pays off handsomely down the road. By paying bi-weekly, you'll make the equivalent of 26 half-payments in a year. At the end of year, the marketing company (on behalf of your bank) makes 1 additional payment toward your mortgage. So the end result is that you pay 13 months in a 12-month period.
But there are several problems here. What if the marketing company messes up the payment, then who is delinquent? (You are.) And because the marketing company only pays out once on your behalf each year, they and the bank held some of your money all year long and get rich off the interest, instead of paying down your mortgage steadily every two weeks.
So what should you do instead of letting someone else set you up on a bi-weekly payment plan? Keep making monthly mortgage payments and add one-twelfth extra in the additional principal box on your monthly coupon. For example, if your monthly payment is $1,200, pay $1,300 instead.
That way you'll do for free what your bank wants to charge you for—and you'll bring your principal down much quicker.