Taking a loan and making monthly automatic payments seems a normal activity. However, some fine print coming into play currently! Sharing some of my lessons learned in the process!
For any kind of loan, there are three important aspects we need to look at
- Loan amount
- Loan duration
- APR%
Now, in case of mortgage loans, there is a concept of loans being sold to other parties and if we have taken a loan with Bank A, our loans can be sold to Bank B or C or D or all of them during the tenure.
Not all banks have the loan tenure information displayed in their monthly or annual statements. When a loan is moved from one bank to another, some banks offer online access to view their statements and some of the larger banks do not.
If you have a mortage loan and it has been split between two banks it gets even more complicated. You would have no choice in how your loan is split, the primary mortage company or your realtor who helps process your loan chooses these and shares the documentation to sign.. Yeah.. that happens all the time, it gets even more difficult.
The tenure on one part of your mortgage can be different from another part of the mortage loans. No information about it is shared to the borrower about the difference in tenure of the loans. One fine day, bank A sells the loan or sends it over to collections as the loan tenure is up, and if they are one of the banks who have not provided online access to their customers, you would never know.
So, how does one get to finally know it? The automatic monthly payments will get declined, which impacts your credit history and then, when you raise a dispute, that is when the bank decides to inform you about the loan tenure and expects the funds in down payment – EVEN during COVID situation. Now, your credit history is already impacted and it would be difficult for you to get a loan.
These disputes are then resolved by the credit reporting agencies and a long email stating that it is the borrower’s responsibility to keep checking on who owns their loan gets sent out as a response.
If you are getting to read this, do look up the tenure on all your loans and be aware of which bank is currently holding your loan. You will not have to go through the shock like some families are going through!
Some mortgage loans give a monthly payment amount, which predominantly gets adjusted towards your interest and the principal remains. Especially for second mortgages on your home loans, if you end up paying only your monthly payments – you might have paid more than your original loan amount for the tenure, however, you would have ended up paying only the interest and 60-70% of your loan amount is still unpaid by the end of the tenure. Yeah.. read it again.. this is true!
To avoid this situation, some of my friends end up paying a set amount additionally every year, marking it against the principal. They say, one needs to send a cheque explicitly mentioning that the payment is towards the “Principal” and ONLY then, the payment will be adjusted against the principal.
I wish banks and credit reporting agencies took a serious stand on this and writes off the excess payments made during a 15-30 years duration. It just does not seem fair that after the tenure is complete, one is still owing them 60-70% of the amount on the principal. How exactly is the monthly payment determined? And who decides that and who explains it to the borrower?
One person’s mistake is another one’s learning! So, do check your loan tenures and discuss with your banks about whether you are paying your principal or interest or both, and at the end of the tenure, what will be the amount due?