Wednesday, July 31, 2013

Why You Should Not Put Your Bills on Autopay

Companies are constantly pressuring us to stop receiving mailed bills and to stop mailing our payments. They tout the convenience of bank or credit card autopay arrangements. Of course they do, since it is very convenient for these companies to not have the expense of mailing bills and to get your payments as quickly as possible. But autopay is not convenient for me, and here's why:

1. Sometimes, I lose a credit card. It happened to me last year. Because I have no automatic bill paying arrangements on that account, it was a simple matter to call the company and get a replacement card and number. I didn't have to remember what bills might be on autopay, and I didn't and don't run the risk that a request for payment will be denied. If you have five or ten autopays on a credit card, imagine the fuss and bother that a new number could create.

2. Sometimes a credit card company has a major data leak, and sends all its cardholders new cards with new numbers. Surprise. The same problem: it's up to you to notify every one of your autopays of the changed account number or else risk damaging your credit by a refused payment.

3. Sometimes a creditor screws up and double bills me. If the company does not have access to my bank account or credit card, all it can do is send me a second bill. At that point I can call and tell them they've made a mistake. If the company has access to my bank or credit card, it can take my money twice, and then I have to go to a lot more trouble to get my money back. The potential is always there with an autopay arrangement. It's wise to take the measure of a company before considering allowing autopay. I have an account currently with an especially inept company and no way would I ever allow that company access to my money via autopay.

4. Sometimes I decide to cancel a service. If I do so as of a certain date, but the autopay is for a different date, someone at the company has to put in an order to cancel the autopay. An entire billing cycle might go by before the cancellation is sustained. Why put up with that?

5. Sometimes a company decides it wants my money really, really fast. If I allow it to have an autopay arrangement, the company will charge me as early in the billing cycle as possible. That may be convenient for the company, but why should I pay a bill early? It might not be convenient for me for the funds to leave my bank account so quickly. Most people live paycheck to paycheck. We don't want to pay our bills on someone else's schedule.

6. Sometimes I might have a dispute with a company, and wish to withhold payment. That's not going to happen with autopay, is it? Not without effort on my part in addition to whatever effort the dispute itself takes up.  

Autopay arrangements have some advantages, such as when you live in a place where your mail routinely gets stolen, or you can't buy postage stamps, or the mail is never picked up. I am not sure you should live in such a place. Except in rare instances, the U.S. Postal Service works just fine to deliver your bills to you and your payments to your creditors.

If you are concerned that you have a relationship with an untrustworthy company that pretends your mailed check was delayed, and thus unfairly and illegally charges you interest on your purchases, find a better company immediately. Or you can always make an online payment without creating an autopay situation. It only takes a few days to set up online payments. You choose the amount and the date you pay. You are not obligated to continue to make your payments online. You can make some payments by mail and others online, thus remaining fully in charge of your financial life.

If you see autopay as an easy way to deal with regular bills such as health coverage, car loans, or insurance, then at least keep an easily accessible list of exactly what bills are paid via autopay, the day of the month the withdrawal occurs, and the contact information. Otherwise, you could find yourself in a pickle. When I lost that credit card, I was 800 miles from home and I wasn't going to be home for several more days. It was very convenient not to worry about messed up autopays.

Friday, July 26, 2013

Why You Should Not Commit Mortgage Fraud

Committing mortgage fraud is breaking the law. Don't break the law. That seems like a no-brainer, but here's why you should not do it. If you start an important legal transaction by cheating, you run the very real risk of a) getting caught, and b) getting involved with people who will cheat you. Con artists work their cons by first getting their marks to engage in something they know to be illegal or unethical. Then, the con artist goes in for the kill. The shamefaced mark, left with empty pockets, is unlikely to report being taken. Why not? Because the mark did something wrong to begin with. Do you want to be the victim of a con artist mortgage broker? No? Then don't start your effort to obtain a mortgage by lying on your mortgage application.

A lot of people think, "I intend to pay this mortgage on time, so what's the harm in pretending I have more cash than I do?" The harm is they can't afford the mortgage. Making the payments will negatively skew their manner of living. They'll be house rich and cash poor. They'll suffer the whole time they live in that house, because too much of their income goes to the mortgage and not enough is left over for an occasional pizza. Improved quality of life is usually why people seek to own a house. You have not improved the quality of your life if you have no cash left over each month after you pay your mortgage.

Some people think, "My parents are lending me the down payment, but I need them to sign a letter saying it's a gift. I intend to pay them back, of course." Those people should not try to buy a house, because they will sour their family relationships over asking other people to commit fraud. Then the high cost of home ownership will surprise the naive new owners, who will be unable to pay the parents back. Instant family trouble. Don't do this to yourself. 

Lenders do not make up qualifying ratios and required down payment amounts out of thin air. Whom do you think has the most expertise about home buying? Not the buyers. The lenders do. Lenders see people buy houses all the time, whereas during an entire lifetime, most people only buy one or two or maybe a couple more houses. Lenders have the experience to know that putting every dollar you have into a loan, and not leaving enough for day-to-day living, is a mistake. People who want to assign a huge percent of their income just to their mortgage soon find it difficult to make their monthly payments. That's the origin of the ratios. And lenders also know that unless people have a substantial stake in the success of a venture they are likely to walk away from it in tough times. That's the origin of the down payment. If you can't come up with 20% of what a house costs, you probably should not be trying to own a house. If your parents give you the money, that's okay, although you still could be at risk. But if you try to pull some secret loan deal and pretend the down payment was a gift, that's the first step to losing the house. Or losing your family.

People ought not try to subvert rules that exist fundamentally to protect them--not the bank--from getting in over their heads. But they do it all the time. They think they know better. They think they're smarter than the banks. Mortgage fraud, from little white lies to outright subterfuge about the origin of money in your bank or for your down payment, will come back to bite you. Don't commit mortgage fraud.