Friday, August 7, 2009

The Hypocrisy of Good Finance

Hello to all and welcome to the blog. I have been wanting to create this blog for some time. I have always loved the cinema and seem to find myself reviewing the films I see to friends and co-workers. I figure, "Why make them so special... the world deserves to hear what I have to say!" Also, my wife and I love to try new restaurants and explore various foodie venues... I figure I can report on this as well. As for my rants, I seem to be achieving the age where I seem to have an opinion on almost anything any more... and I feel the world deserves to know how I feel.

For those of you who plan to stick around and maybe come back to see what my next set of thoughts might be.... this sight will mostly be dedicated to the food and movie review platform. However, don't be surprised when I through a tangent subject in the mix. This first post will be just such a rant.

Let the hypocrisy begin:

Thanks to hard work and good financial planning on the part of my wife and myself we purchased our first home at the end of last year. Nothing special, but a nice home just for the two of us. We shopped the market well and found a very good deal, and the interest rates were quite low. Our first mortgage was sold within a month of purchase to Chase Bank. Their online payment system was a little odd, but once you got used to it there were some nice features.

About 4 months ago, interest rates had fallen even more than before when we had purchased. My wife and I refinanced our home and were happy to achieve an extra percent lower than before. This time, the loan was sold to Bank of America. My wife and I, at the time, thought it was a good thing as our checking and savings accounts were also at B of A. We figured we would be able to easily link our checking and mortgage accounts, much like Chase had done for us before with our Chase Checking account (they also gave us a really nice account with free checks and all... since we now owed them a lot of money). My friends... the illusion is, I am sad to say, over at Bank of America.

During the original purchase and also during the refinancing, my wife and I learned a great deal about how mortgages work. In particular, we learned how various payment plans can drastically effect the term and total interest paid over the life of your loan. For example: if you make a single 13th payment every year to your mortgage, you can actually shorten the length of your loan by nearly 7 years and save yourself nearly $50,000.00 in interest (give or take based on your interest rate). Not only this, but based on your payment plan (i.e. monthly, bi-monthly, every two weeks or weekly) you can also achieve pretty drastic results as well. While it may not seem like a lot, if you were to break apart your monthly mortgage payment into 4 pieces and pay once a week. Your interest will then be recalculated weekly rather than monthly, as the principle is being adjusted weekly. We are talking pennies to dollars different (depending on the size of your mortgage), but it will actually result in almost a 9 year reduction in the length of your loan.

As you can tell... my wife and I have done our homework. We learned the system and how to work the system in our favor. If you are going to make this big of a purchase, you really should educate yourself on this... it will make such a huge difference if you actually fully understand where these lending institutions are sticking it to you. And once you get mad at how they all seem to find some way of taking advantage of you... you begin to find the ways of reducing the pain of these violations... or at least dowsing them with lubricant to make it more enjoyable (I kid).

But back to our friends at Band of America. My wife and I were discussing our finances and had decided it was time to initiate a more fruitful payment plan. Currently we had been paying our mortgage online at B of A's website. We had made the first two payments manually, but I had also just signed up for the 12 payments a year plan as a temporary plan until we decided which payment plan would be the best to go with. I might mention now that any other payment plan other than the manual and 12/year plan comes with a "per transaction" fee... so they must be better, right? (Ha, ha... whimper... think again)

As I explained, paying more often should reduce your interest, and thus increasing your principal payment. This, in turn, reduces total interest paid and length of the loan. However, Bank of America feels that most Americans don't understand good finance... unfortunately, this is true. So... will you get any of these benefits if you go with their 24-payments/year, 26-payments/year or 52-payments/year plans? No. Instead, B of A will hold that money that you have paid them and wait till the end of the month and make your monthly payment for you. This, of course, will not reduce any amount of interest you pay and will not shorten the length of your loan in any way. The only thing it will do will cause you to incur an extra "per transaction" fee charged to you for B of A providing the service of holding your money till the end of the month for you.... but then, I thought that was what checking and savings accounts were for.

OK... so there automated (and fee ladened) plans don't help. So what about the manual method you ask? Well... it turns out that Bank of America thought fast and screwed you here as well. While they will allow you to pay as many manual payments as you want.... only one will be applied to your monthly statement. If that one payment is not the monthly minimum, you will be failing to meet the terms of your mortgage... even if the sum of all your payments for that month exceeds your total monthly payment. The reason being is each "partial payment" will be applied directly to principal only. So yes, your total interest will be reduced, but at no savings due to multiple payments, but rather because you are paying more than you monthly minimum... as you have to have that one payment each month that matches or exceeds your monthly payment.

So... if your mortgage falls into the hands of Bank of America, be thankful. They are there to think for you because, after all, we are all to stupid to think for ourselves. And for those of us smart enough to see through B of A's BS.... there is absolutely nothing you can do about it. If you want to reduce the life of your loan or save yourself some interest, you are going to have to do it the old fashioned way.... simply pay them more money faster. And thus the Hypocrisy of Good Finance.

Tell me what you think America... my door is open and the Doctor is in.


  1. Welcome to the Blogs, I cannot wait to see what else you have coming. With a first post as spot on against the banking evils, more is sure to be entertaining!

  2. Ah, you, too? BoA has another [pick your own descriptive word] going in my state; our property taxes are in flux and assessments have been jumping around, so they have cranked up escrow/reserve amounts to the max permitted and are hitting people up for either big lump-sum payments and/or big increases in house payments. I got both.

  3. God Lord, it's like some kind of demented Big-Bank lay-away mortgage plan?! They must also do high-interest payday check-cashing and red-lining... Sheesh. Welcome to blogging, BTW.

  4. One point about paying, for instance, 13 months rather than 12 per year. Double check you particular agreement. I did so for a while, until I noticed the reported principal in the statements provided by the mortgage company did not seem to be going down as much as expected - which is when I learned that over-payments were applied to interest, not principal. So I was pre-paying interest that would be due in thirty years or so...

  5. Man, that is just typical BA criminal bullsh*t. I quit banking with them decades ago and have never looked back.

    And welcome to the blogosphere. Give Kevin a kiss from me!

  6. Sorry, Ride Fast, but the company has a no fraternization policy!

  7. When I refinanced my humble abode last year with my credit union, I specifically asked, and received confirmation in writing, that my mortgage would not be sold off to another holder- just for the reasons you so clearly described.

    Welcome to the blogging community!