Wednesday, October 10, 2012

The Mortgage Jokers

Did you know that the word mortgage means “death pledge?” That should tell you almost everything you need to know about borrowing money to buy a house.

We recently refinanced our mortgage down to a significantly lower interest rate, and since we re-upped the loan for another 30-year stint, our monthly payment is a lot less. To compensate for adding additional years back onto the loan, we are making larger-than-required principal payments to reduce the length of the loan, and minimize the amount of interest we’ll pay.

At least, we tried to do that. The bank looked at our first larger payment and immediately chose the most inane way imaginable to allocate the funds. I won’t tell you the name of this whiz-bang financial institution, but it rhymes with Wells Fargo.

Here’s what happened: (I have chosen round amounts for simplicity, but not because I think you, the loyal reader, couldn’t follow along. I am attempting to make this as simple as possible in case anyone from the bank reads this, so they might have a fighting chance of understanding it.)

Let’s say our total loan amount is $100,000, and our monthly scheduled payment is $500. We sent them an October payment of $1100.

If we were to pay the scheduled $500/month for the next 30 years, we would pay a grand total of $180,000 to the unnamed bank. We would have paid them the $100,000 principal back, plus $80,000 in interest. We don’t want to pay them $80,000 in interest, so if we pay them $1100/month, paying an additional $600/month toward the principal, it only takes 9 years to pay them the $100,000 back, and we only pay $22,000 in interest.

Simple, right. We thought so.

Not to them, I guess. They took our October payment of $1100, looked at it carefully, and decided that we must have wanted to pay our standard October bill of $500, pre-pay our November bill of $500 -- $400 of which is interest -- and put the remaining $100 toward the principal. They sent us back a statement telling us that’s what they did with the money, and the good news was that our next payment wasn’t due until December!

An open letter to our mortgage lender:

What the hell are you guys smoking over there? You geniuses actually looked at my more-than-double-sized mortgage payment and concluded that I wanted to pre-pay next month? Really?

Has anyone in the history of the mortgage ever pre-paid a month? That is some serious outside the box type thinking right there, fellas!

You guys seriously thought that I am sending you extra money so that I can get a jump on paying you the entire $80,000 in interest as scheduled in the 30-year payoff plan? It didn’t even cross your minds that I might be trying to pay down the principal faster? Really!?!

So, by that same superior banker’s logic of yours, if I came into a bunch of money and wanted to pay off my mortgage tomorrow, and I sent you the entire $100,000 principal amount, you would naturally assume that I wished to pre-pay the next 200 months’ payments, so that I wouldn’t have a care in the world until the year 2028, at which time I would happily resume paying off the remaining $60,000 loan balance with interest over the next 160 months?

That makes perfect sense.

Now, I understand that I just sent the large payment in without any specific instructions. I can kind of see where you might have thought twice about what to do with the money if I had sent it in as a check, with no instructions, and the amount had been exactly two payments. Maybe you might have thought to yourselves, “This man will obviously be out of the country next month, and unable to send his November mortgage check to us on time, so he is obviously sending us that money now, so as not to disturb our fragile cash flow situation here at the nation’s fourth largest bank.”

I mean, if I squint really hard, I can almost see that scenario playing out at that think tank you guys are running over there. But, fellas, seriously… This payment came in electronically from my bank. Do you brainiacs think that I was smart enough to set up an online bill payment account with my bank, but I wasn’t smart enough to find the “recurring monthly payment” button?

This isn’t looking good, boys. You guys are facing the same conundrum that most of this country’s politicians are in right now. You can’t be even remotely mediocre at your job and screw it up this badly, so you are left with two unpleasant choices: Either you have to admit that you are about as smart as a box of hair, and unfit to run your own life, let alone a bank, or you have to admit that you are a crooked cheat. It’s either one or the other, because nobody with an IQ over room temperature would make that kind of mistake in earnest.

Thanks for giving me the loan in the first place. I really do appreciate it. But, play fair, or I swear, I will go through the long and painful process of refinancing my “death pledge” again, just to make sure you never get another penny of my money.

Sincerely yours,

Watch your bankers closely, folks. As with our politicians, something tells me I already know the answer as to why the “mistake” was made.

See you soon,


Copyright © 2012 Marc Schmatjen

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