January 21, 2008

Why Can't You Have Your HELOC Payments Automatically Taken From Your Checking Account on the United First Financial Money Merge Account?

I have been getting a lot of emails and calls recently concerning the question of why can't you have your HELOC payments automatically taken from your checking account when you are the United First Financial Money Merge Account. Well, I thought I would address this as a post since it seems it is a hot topic.

It is true that most banks will give you a lower rate on your HELOC if you elect to have payments for the HELOC automatically withdrawn from your checking account. The interest rate savings varies from each bank as is usually about .25% to .50%. So, instead if getting a 8.00% rate on your HELOC, you could get a 7.75% to 7.50% rate. Sounds good, but wait.

The main reason why I tell clients not to elect for the automatic payments is because you run into two problems:

1) Increasing your payoff time on the United First Financial Money Merge Account
2) Running the risk of overdraft charges

Let me address both these issues.

1) In order for the United First Financial Money Merge Account to work the best, you should never have money sitting in your checking/savings account and it should all be in your HELOC. Therefore, you should always have a $0 balance in your checking/savings account.

When you elect to have automatic payments on your HELOC, the bank will take the payment on the HELOC from your checking account. Therefore, you will have to transfer funds from your HELOC to your checking account or not transfer all the money in your checking account to your HELOC to make sure you have the funds available to make the payment.

Yes, your funds transfer from your checking account to your HELOC should count as a payment, so you shouldn't owe a payment to the HELOC, but some banks have a minimum financial charge or fee for the automated payments. This minimum finance charge or fee will be taken from your checking even if you tranfer your funds from your checking to HELOC.

2) If the bank tries to take money from your checking account for the payment and there isn't enough there, then they could charge you an overdraft fee. I have seen these fee as high as $50 for each occurance. Therefore, to safeguard yourself, you will have to keep money in your checking account instead of keeping in your HELOC.

So, you can see why having the automatic payments on your HELOC is a problem when you are on the United First Financial Money Merge Account. My advice is don't worry about the saving on your HELOC rate as the potential problem of overdraft fees and increasing your payoff time is a bigger problem then a .25% to .50% savings on your HELOC rate.