Mortgage Payment Error
Banking errors happen and they are much easier to accept when they are corrected quickly and at no cost to the customer.
Earlier this month I submitted an online form to my mortgage lender with a request to make a prepayment of $500. It is pretty easy and I have never had any problems in the past. A couple of days later I was woken from a nap my my better half because our joint account was in over draft because the mortgage lender had taken $12,500.
After transferring funds from our line of credit I tried to figure out how that could happen. I was 99.9% confident that I submitted the right amount, but had a little self doubt because I could not see how the bank could confuse $12,500 from $500. On the other side of that doubt was the fact that I knew we had enough money to cover a $500 mortgage prepayment but an amount of $12,500 for a mortgage prepayment would cause all kinds of havoc.
This happened over the weekend so nothing could be done and the end result was a NSF change for $40 as the bank had reversed the mortgage prepayment.
I contacted my mortgage lender and explained what had happened. They were able to see the $12,500 being withdrawn from and then put back into our account. The were not able to explain how a $500 mortgage prepayment could turn into a $12,500 mortgage prepayment. They asked for a bank statement to refund the $40 NSF fee.
I faxed in the bank statement and the $40 was back in our account within 2 days. I followed up with a phone call to see how that may have happened and they didn’t know. I was advised to phone in to make prepayments rather than completing the online form.
At the end of the day their mistake cost me about 20 minutes of my time to correct, but I was very happy with how quickly it was corrected.
Debt & Mortgages
I have been reading different blogs this week about paying down debts and mortgages to see how others deal with debt. I would like to share the following with you.
Michael James on Money has a conflicting view on debt with our government. I have to agree with him.
Frugal Trader at Million Dollar Journey talks about the changes to the mortgage rules for Canadians.
Blunt Money talks about paying off debt. She is blunt and basic!
Read about Mindsets to Break Free from Debt at I’ve Paid for this Twice Already…
Frugal Dad tells you how to be a Debt Killing Machine!
Enjoy the read….
February 2010 Mortgage Reduction Report
February is almost over and I thought we were not going to be able to hit our target for our mortgage prepayment this month. That was until the bank made a big error. I sent in a prepayment request for $500 and somehow $12,500 was taken from our account for a prepayment. This caused a little grief as we were in overdraft for a day before using our line of credit to get us out of overdraft.
I am going to call the bank and ensure that all the money was put against our mortgage and see if they can figure out how that happened. Although everyone makes mistakes I do not see how I would put $12,500 instead of $500 and I can’t see how the bank would either. After we get stuff figured out we are likely just going to leave things as is. The difference in the interest rates between the line of credit and our mortgage is minimul so the difference in the interest over the 3 months it will take to get the line of credit paid off is about $5 as compared to the mortgage. If the bank finds that they made an error and we find out that we have suffered any loss by going into overdraft I am confident that they will compensate us.
There is a big change in our interest saved this month. I was playing with our mortgage numbers the other day and noticed that I had made an error when we first took our mortgage. Before the first payment was even made we switched to accelerated bi-weekly payments rather than monthly. I neglected to calculate the interest savings that we experienced when we switched to the accellerated bi-weekly payments. Putting this into the equation I am extremely happy to say that we have saved $276K in interest costs combining the bi-weekly payments and our monthly extra mortgage payments. This month’s bank error certainly helped. That number simply astounds me. We had an immediate savings of $97,552.90 when we switched to accelerated bi-weekly payments and it reduced our amortization period to 32 years. Our additional prepayments have done the rest.
If you have not looked at what a couple of hundred extra dollars a month will save you over the life of your mortgage, you really should.
We did pass a couple of milestones due to the bank error. Since we started our mortgage 19 months ago we have paid a total of $108,606.22. We have also paid our original mortgage balance down by 27%. Now we will be paying down the line of credit for three months.
After we got our error sorted out we decided no to utilize our line of credit to bring our mortgage balance down. Our prepayments this month totaled $2000. That combined with the additional $778 last month were are $1934 behind in our prepayment YTD. We will see what we can do about that in the months to come. The milestones we had reach have been reversed and we will have to wait a couple of months before reaching them.
Book Savings
I am a huge fan of buying books. In fact I you might say that I buy too many. Most of the books I read are financial and are basically the same with some twists or personal opinions in them. Some are used as reference material and some just sit on the book shelf without being touched after being read. Do I need these book collecting dust? No.
For 2010 I am going to stop purchasing books and rely on the public library. The last time I renewed my card is was around $16 which is much better than the $300 I spend every year on books. I will still purchase books that I feel I may to refer to quite often, but I am definitely going to cut back my spending in this area. I am also going to avoid buying books from a book store if I am able to purchase them online and have them delivered for less that the book store cost.
Estimated yearly savings: $200
Total yearly savings for implemented strategies: $2,240
Total savings missed for strategies not implemented: $322
Difference: $1,918
RRSP Season
We are just into February and I am sure you are being bombarded with advertising about RRSPs. I received my Money Sense magazine earlier in the week and I wanted to share a portion of the article about RRSPs.
Q. I have a pension. Do I need an RRSP too?
A. For most people the answer is yes – although if you have a good pension at work you can certainly contribute less to your RRSP than someone without one. With no pension, you can contribute up to 18% of your income to an RRSP each year. If you have a private pension, then the amount you are allowed to contribute to your RRSP will be reduced, to reflect the fact that you are also contributing to your retirement 
income through your pension at work.
There is one group that doesn’t need RRSPs at all: government workers. Teachers, police officers and other civil servants have among the best pension plans available and won’t need help from RRSPs to retire comfortably. For instance a couple who are both government workers can expect to enjoy a combined annual pension income of at least $50,000 with is roughly the kind of income that a million dollar portfolio would generate
Q Which should I contribute to first: my mortgage or my RRSP?
A. Financial planners have debated it for years, but from a pure dollars-and-cents perspective the correct answer is usually to pay your mortgage down first. Every time you make an extra mortgage payment you reduce the amount owed on the principal. If you mortgage interest rate is 5%, paying it off faster is like getting a guaranteed 5% return. yes, you can get a better return than that in the stock market (if you’re lucky), but it’s no guaranteed. So unless you can find GICs that pay 5% you may want to attack the mortgage first.
I want to add a couple of comments to these points. If you are carrying a balance on any high interest debts such as credit cards or loans you are better off paying them before your RRSP and mortgage. Those who are involved in a group RRSP plan where your employer matches your contributions should contribute to these plans before making additional mortgage payments.
What do you plan to do this year, pay down your mortgage or contribute to your RRSP?