Know Your Mortgage Statement - Framework

Know Your Mortgage Statement – Framework

Something New for Your To-Do List

Buying a home brings an important new document into your life: your mortgage statement. So as you begin your life as a homeowner, the first thing we want to help you do is get to know it. Most likely, it will be with you for a very long time!

Be sure to review your statement every month to see whether anything that shouldn’t have changed has changed. Like the amount of your next payment and the date it’s due. We know you know how important it is to make your mortgage payment on time each and every month. But we can’t help saying it again: it’s very important to make your mortgage payment on time each and every month. You’ll keep your credit history and score in good shape — and avoid late fees, which can really add up.

Your statement might not be generated by your lender. Often, a separate loan servicer collects your payments and manages your escrow account. If that’s the case, it’s the loan servicer you’ll go to with any questions.

Here’s what we’re going to cover:

 

Let’s Take a Tour

Take a look at the sample statement below. Yours might be organized differently — get that in front of you too — but the same information will be there. Here’s what it all means.

1. Summary for the Month

Payment: You’ll see your total payment due for the month, plus its components: your basic monthly payment comprising principal, interest, and escrow; the payment on any optional products (a home equity line of credit, for example); and any overdue payments and late charges.

Late charges: These are typically calculated at 4 or 5 percent of your monthly payment, depending on the terms of your loan (which are detailed in the mortgage note you should have filed with your closing documents).

The interest on your mortgage doesn’t compound if your payment is late, but those late fees can pile up and have to be paid eventually. If, for whatever cash-flow reason, you just keep missing the first of the month, it can’t hurt to ask about negotiating a different due date.

Due date: For the vast majority of mortgages, the due date is the first of the month. Your statement should detail the payment methods that the servicer accepts. Here’s a Bankrate article on the pros and cons of different payment methods.

To allow for postal delays and holidays, there’s usually a grace period ranging from a couple of days to as many as 15. After that, your loan servicer will add a late fee to your next payment. Payments made more than 30 days late will be recorded on your credit report.

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2. Big-Picture Summary

This section includes how much principal you still owe, your loan’s interest rate, the interest and taxes you’ve paid so far for the year, and how much is in your escrow account. (If you have an adjustable-rate mortgage, you’ll be notified in advance of a rate adjustment and the estimated new payment.)

While we’re on the topic of escrow: Once a year, you’ll also receive an escrow disclosure. It will review what was paid out over the last 12 months and what you can expect to be charged over the next 12. If you paid too much, you’ll get the extra back. If you paid too little, the shortage will either be spread over your next 12 mortgage payments or charged in a lump sum.

Most mortgages don’t have a prepayment penalty. But if yours does, it should be stated in the summary. Typically, it would kick in if you paid more than 20 percent of your balance in a single year, but terms differ.

3. Activity Since Your Last Statement

A history of your previous payments, including exactly how each payment was applied to principal, interest, and escrow.

For a fixed-rate loan, your total principal and interest will of course remain constant. But with each passing month, you’ll see the amount going to principal increasing, and the amount going to interest decreasing.

Your monthly escrow payment will change occasionally too. (Reminder: escrow can include property taxes, homeowners insurance, and mortgage insurance.) That’s because it’s based on an estimate of the annual amount, divided by 12, and the loan servicer sometimes over- or underestimates. Some servicers also figure in a cushion of up to two months of escrow payments. If your loan servicer does adjust your escrow payment, you’ll be notified a few months before it shows up on your statement.

4. Customer Service

Here’s how to reach the loan servicer if you have a question about your statement or find an error. Have your mortgage statement ready. You’ll need your loan number or Social Security number.

5. Message Area

This is where you’ll find special messages or announcements about your account. If you’re getting behind (and maybe even if you’re not), you’ll see information about how to contact a HUD-approved housing counseling agency in your area. See “Getting Behind?” for other counseling options.

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If You Find an Error…

Sometimes an error can be resolved over the phone, but if not, it’s best to request a correction in writing. Your mortgage servicer has 30 business days to either answer the complaint or inform you in writing that they need another 15 days to investigate and respond.

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Meanwhile, keep making the payments as they appear on your statement.

Some tips for your letter:

  • Make it a separate letter. Your payment coupon or other payment form is not the place to address the problem.
  • Date it.
  • Remember to include your name as it appears on your mortgage, your home address, and your mortgage account number.
  • Identify exactly what you think the error is.
  • Confirm the address or fax number. Many servicers have a dedicated address or fax for this kind of correspondence. If you fax, be sure to confirm that they received it.

If you have a problem with your servicer, you can submit a complaint to the Consumer Financial Protection Bureau.

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Record Keeping

Keep it all, keep it safe

Keep all the original hard copies related to buying your home forever. That means purchase agreement, closing documents, loan documents, deed, and title certificate. If you ever have an issue with your mortgage, you might be glad you have your own copies in hand. As for your mortgage statements, it’s not a bad idea to keep them for a year. Keep the year-end statements for the life of the loan.

As for safety, redundancy is your friend. Paper documents should go in a fireproof box, and a backup set of paper or scanned copies in another location. For paperless documents, follow good data backup protocol: back up to both an external hard drive and your favorite cloud method. A natural disaster might knock out one, but probably not both. If you’ve been putting off getting your personal backup act together, now is the time.

For tax, insurance, and resale purposes, you’ll also want to keep records and receipts for repairs, maintenance, contractors, and warranties on household appliances and equipment.

Want to go a little deeper on this topic? Here’s a Bankrate article on how long to keep financial records, including home records, and why. You might also like this one on how to organize your financial paperwork.

Should you go paperless?

As with almost every other bill these days, your mortgage statement can usually be “delivered” via an email reminding you to go online and look at it. Saving trees is good, but before you click that “go paperless” button, know thyself.

Are you less likely to review your statement if you merely get an email notification? Given the size of the obligation, you need to pay close attention to whether everything on that statement is in order. If getting a piece a paper hand-delivered by a uniformed government employee helps you do that, by all means get the paper and maybe plant a couple of trees in your new backyard to make up for it.

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Getting Behind?

If you were to get 45 days behind on your mortgage payments, you would see information about delinquency in your statement’s message area. Please contact your servicer and a homeownership advisor (sometimes called a housing counselor) before you reach that point — the minute you think you might have a problem. Some good options:

  • Search here on our website for a homeownership advisor near you (all our advising partners are HUD approved)
  • Find a HUD-approved housing counseling agency via the HUD website or by calling 800-569-4287

If you’ve gone beyond might have a problem to definitely have a problem, consider going directly to a foreclosure prevention specialist:

Tips on Making Your Payments

Paying on time

Are you the forgetful type? Look into setting up automatic withdrawals from your bank account to your loan servicer. Or schedule the payments ahead online. Your servicer might also offer reminder emails or texts.

Are you the do-it-now type? You might assume that paying early will save you a little interest, as it would with a credit card balance. Nope. Mortgage interest is calculated monthly, not daily, based on the previous month’s balance. If you do pay early for some reason, let your servicer know, to be certain the money goes to the right place. You wouldn’t want the payment to go to principal, for example.

Partial payment

Note that if you ever make a partial payment on your mortgage, it will probably be held in a separate account — not applied to your loan — until you pay the balance. In other words, the partial payment won’t be considered on time.

Paying extra

You might want to pay more than the amount due for a variety of reasons. Make sure the extra goes where you want it to go. Principal? Escrow? A previous late payment? If the servicer hasn’t provided a clear way to indicate how you want the excess applied, get in touch with them first.

 

Problem with Your Servicer?

If you ever have a problem with your servicer, you can submit a complaint to the Consumer Financial Protection Bureau.

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