Legal way to compute interest?

rBrook · Joined: 28 Jun 2005 Posts: 4

I have a new mortgage. Made the first payment after 20 days. I now discover that they charge interest for the whole month when you make a payment. I thought they had to compute the interest by taking the number of days since last payment or loan inception; then take the amount owed and multiply by interest rate, divide by 365 and multiply by the number of days to get the daily accrual factor. They told me that all the mortgage companies just take your amount owed, multiply by interest rate and divide by 12. Does anybody have a clue about this? Thanks!

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Many companies will apply your payment the same regardless of whether you pay it on the 1st or if you pay it 5 days or 10 days early. The only difference would be if you made a principle payment, and long term.

If you were to payoff your loan however in *most* cases your payoff will be as of the date you pay it off. This can be different with FHA loans however, which it has been my experience that when you pay them off the interest is calculated through to the first of the month. (So if paying off your FHA loan through a refi or sale, make sure it's near the end of the month!)

Many companies will set up semi-monthly payments or bi-weekly payments and will still only apply it as if you had made the total payment just like normal. The difference with bi weekly would be that you'd get an extra payment ouf of the year.

Hope this helps.

rBrook · Joined: 28 Jun 2005 Posts: 4

Thank you for your input. Actually, I did pay about $250 extra to be applied to the principal when I made that payment. But they say it makes no difference. So you can be a couple of weeks early so they can use your money to their advantage, but don't you dare be a day late. It makes me wonder why somebody would bother making 1/2 a payment in the middle of the month and then the other 1/2 at the end of the month, thinking they were saving money on interest.

chow · Posted: Tue Jun 28, 2005 5:06 pm Post subject:

Here is the *trick* to paying ahead. You send in your monthly payment, so the servicing area isn't too confused, then you send in another payment within same month, or same envelope, that is clearly marked "apply towards principle balance owed."

Please enter "brain dead need only apply, you're just gonna input checks from who ever sent in a check with a invoice"

You're going to trip the person who's doing your account out. But-if you have an account on line with the lender, then you can moniter it, and give them a call if your funds were not applied to your account correctly.

here is an age old secret: Attach a paper clip to the added amount you are paying. with a different check. Tell them you need an acknowlegement of the added payment to the principal amount and to include your paper clip back to you. Mark the paper clip with nail polish.

that drives people in the BK world nuts, but it makes them acknowledge when a payment is made, and where it is applied. This is a legal way of verification-It forces people to actually call you, or take your calls!

that's just my way of stating, anyone in a CSR area really needs a brain.

and yes, I'm really evile when you ask me to be.

rBrook · Joined: 28 Jun 2005 Posts: 4

Chow, thanks for your input. Very funny! I really do believe one of the ladies I spoke with was brain dead. I was explaining to her how I got the figures I got, and she could not follow me. I did it just as I first explained in my post. All she could say was, "Didn't you get a printed amortization? You need to follow that." Duh. All the heck an amortization is, is a printout of payments broken down as to principal and interest by the month. You could follow that if you paid exactly the amount each month you were supposed to, and on the exact date. But variances such as paying extra principal mess it up. I am a programmer and have written the code to produce amortization printouts for banks, etc. I felt like shouting at the dufus that I did not need a @#$%^&* amortization to compute interest. Geez Louise. I guess I should have asked the lady if there was a nail polish-stained gem clip on her amortization printout and if so, mail it to me at once since it belonged to me.

chow · Posted: Tue Jun 28, 2005 6:02 pm Post subject:

<watch chow go and hide behind front paw>

Yes sir, we aint' real smart when it come to figuring a new payoff unless we have one of them "programs" to figure it for us!

Here is the basic rule of thumb on mortgage payments

Pay one extra payment for the first 7 years, and knock off 10 yrs on the loan.

What is your loan amount?

How many years? What is your Payment without the Taxes and insurance? (we call this P&I)

Then I can figure it backwards for you, and you can drive the CSR people nutty with your colored paper clips, and get a print out every month in the mail, with your return paper clip. (If you really want to drive them crazy, include a self addressed, stamped envelope, to return the account information, along with you paper clip. Federal Law says, they have to follow up with that, and it drives them buggy, off the wall buggy. But it makes them train people to not drive customer's to this level!) 8)

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

I like that idea Chow. You should be getting a letter from me in the next couple days...

rBrook · Joined: 28 Jun 2005 Posts: 4

Chow, thank you for your offer to help out. Actually I guess I have my question answered, which is, yes, it is legal for them to charge interest in advance, which reallllly torques my jaw. I can't believe they can get away with that. I can tell you this story about something that happened about 15 years ago. Hubby and I had a mortage loan with a Federal Savings and Loan. I paid the payment for that month, on the first, as required. Then I received a check from some savings and decided to run back and pay that on the loan. The check was for $10,000. So I paid that amount about seven days after the regular monthly payment. Well, when I got the statement, it showed that they computed the interest on the loan amount before the extra payment, and used that figure to charge interest for the whole month. To boil that down, they charged me interest on $10,000 for three weeks during which I did not owe that $10,000.

I called them the next day and got a man who was one of the loan officers. I told him my problem and he said he would check into it. I didn't hear from him that day nor the next. I called him the next day and he said "I don't have time to sit around playing with my calculator like you." and blew me off. I got on the horn with the Savings and Loan company's equivalent of FDIC, can't remember the acronym right now, and told them about it. They told me it was illegal to charge interest in advance and took down my name and account number and told me they were definitely going to check it out. Within a month, the place was closed down by that insititution.

Oh, this is the best part. As soon as the regulators swooped in and started looking into my account, the loan officer called me and mealy-mouthedly apologized for not helping me out to begin with. He told me they found that their software was computing the interest incorrectly and had been for all those years. Hello!!! What was I trying to tell you? Dufi are plentiful.

chow · Posted: Tue Jun 28, 2005 7:42 pm Post subject:

oh lord, I have to take this one sentance at a time.

Interest is figured in arrears. Which means you pay your interest for the next month, in advance. that is legal. That is based on the fact that, you hold a loan on real estate, and the only fair way to compute that simple interest is from the start date, and go forward 30 days. Your avereage calendar month. (now we are getting into the APR vs Rate and RESPA)

This is on a First mortgage loan, however your key sentance here indicates a second mortgage product:

"Then I received a check from some savings and decided to run back and pay that on the loan. The check was for $10,000. So I paid that amount about seven days after the regular monthly payment. Well, when I got the statement, it showed that they computed the interest on the loan amount before the extra payment, and used that figure to charge interest for the whole month. To boil that down, they charged me interest on $10,000 for three weeks during which I did not owe that $10,000. "

This loan woukd be computed as a charge card attached to your house. The only way to get a purfect pay off amount is to walk in, ask for the balance, and the pay it. However, if it is a second mortgage HELOCK, you may be required to keep it open for a certain amount of years to avoid a prepayment.

I made the mistake of pulling up to our HELOCK bank one day to "pay off" the balance, they thought I wanted to close the HELOCK, so I had to pay an extra $75.00. The payoff on the slip was less than $10.00. I jumped out of the car, went into the branch, talked to the loan officer and and asked why I had to pay 75 dollars to pay of 10 dollars, he said it was because I had indicated I wanted to close the account, and the pre pay on that was 75 dollars.

That was never my intention. first I had to point out...
1. I'm not on the loan, how can I close it?
2. I'm just trying to get a 0 balance, my husband may need the account in the future.
3. Does anyone know how to explain these loans to anyone on the phone or in a car window?

chow · Posted: Tue Jun 28, 2005 7:46 pm Post subject:

Haplo wrote: I like that idea Chow. You should be getting a letter from me in the next couple days...

for what? :shock:

escape from the internet ideas?

Haplo · Joined: 20 Jan 2005 Posts: 2422 Location: Springfield, IL

Chow has a wealth of information in that little puppy brain ;)

I liked your story brook, glad to hear that some people take matters into their own hands!!

I can't believe there are people that act like that. Anone here not in a service industry? Anyone?

chow · Posted: Wed Jun 29, 2005 3:54 pm Post subject:

Haplo wrote: Chow has a wealth of information in that little puppy brain ;)

I liked your story brook, glad to hear that some people take matters into their own hands!!

I can't believe there are people that act like that. Anone here not in a service industry? Anyone?

If the interest was computed incorrectly, and depending on what kind of a loan it is, you can take the note-with the terms into about anyone with mortgage software and have it figured. However, each software program does compute interest and payments a little different.

(and how about how I spell heloc when i'm hot and tired?)

Example. go into any online mortgage payment calulator, and try a few out. If you enter the exact same terms on a loan-you will find a few dollars or cents difference. Now go to a couple of different brands of hand held calculators, and even a couple of the same model and brand. Tell me they don't compute a payment different than each other-75% of the time. If I had not seen this with my own two eyes, with several banking systems, and Loan Origination software programs, and hand held calulators-I would not have believed it. The key is in the intial disclosures, the TIL and the Good Faith Estimate at closing. Figure the Truth and Lending Disclosure APR against the HUD 1 Settlement Statement. You are allowed a varience of 50-100 bucks or a percentage depending on where you live. Each state, county and city has a different set of rules. Those of us in the compliance areas use what we call, a High Cost Worksheet. This worksheet is changed as fast as the lawyers and laws change. Then you try to ere on the side of caution, if you're not sure. (The RESPA cops have never came after anyone for OVER Disclosing!)

Once a loan is found to be underdisclosed, and you are reissued a new TIL, as the customer- to sign due to underdisclosure, the Right of Rescission is reopened for a couple of years. (instead of 3 days) Most banks just go ahead and send you a check for the difference and hope you don't make waves.

Have I lost you yet? :lol: If I did, I bet I haven't lost the regulators or lawyers who peep at the site!

I think that's what happened to your lender. they were so far out of compliance that something triggered an audit, and once one of the audit teams are in there, and find issues, you may as well just plan on a party with the other's!

No loan is ever purfect, but lenders who sell the notes on the market do attempt to audit asmany as they can, to assure you're treated fair. If enough people complain about the same lender to the state. HUD and those RESPA cops are usually on it. (that's what we pay taxes for-right?)