Balloon Real Estate Loan woes

[titulescu]

What is the name of your state? Tennessee

Hello,

My mother has taken out a Balloon Real Estate Loan for some land, and I need to know if the following is legal. If not, how would i go about fixing it?

The terms of the loan :
Amount Financed $14,604.30
Fixed interest rate 8%
Interest computed on 365/365.
Post Maturity interest 18%

The Schedule of Payments reads as follows:
"This Promissory Note is payable in consecutive monthly instalments commenching on March 10, 2005 in 59 equal payments of $135 and all then unpaid principal and interest due at Maturity."

The next section states:
Annual Percentage Rate - 8.000%
Finance Charge $5,543.05
Amount Financed $14,604.30
Total of Payments $20,147.35

The Maturity payment is due on Febuary 10, 2010 in the amount of $12,182.35.

Prepayment: If i pay off early, I (will not have to pay a penalty)&(may be entitled to a refund of part of the finance charge).


Now for the Problem. Every month she has made the $135 payment (never late) and has also sent in additional payments for the Principal. The Issue arrises when they charged interest on a few Principal payments. After she made the Regular payement for the month, she would regularly send in additional payments within the month for the Principal. She sent them a check and a written statement on how to split the money. Some months it was done correctly, others it was out right ignored and all the checks for that month was marked as a regular payment. She has now spent the last 6 months trying to get them to fix their mistakes and has gotten nowhere.

She has requested a full detailed statement for every payment ever made. What was recieved was a printed out statement that only showed the payments from November 07 till now current. On the bottom was hand written saying they have upgraded to a new computer system on 10-06-07 and if we want the subsiquent statemetns we must contact them and they can "possibly research the account".

Now that i have been looking at her statements, I have found out that they have been charging irregular intrest on her Regular payments. For example:
1) November 2007 $135 (payment) $19.92 was the charged interest (wich by my math equals 14.75556%)
2) December 2007 $135 (payment) $17.66 for interest (13.08%)
3) 2007 satement shows them taking out $347.20 for interest. If i am not mistaken, they should only have taken out $129.60 (8% of $135= $10.80per month).

The bank has told her that they are correct in what they have done with her payments and that there is no error. She then talked to another loan officer and was given the option to review all of her checks, and charge regular payments on All of the checks as long as it does not state principal on it. Simply because the bank said they do not keep any hand written statements on what payment applied to what in thier files. These are the only options the bank is giving her.

Are there any options she has? Is what they are doing legal?

[efflandt]

Interest is not 8% of each payment, it is 8%/12 (or 0.66667%) of the loan balance for that month (which gradually shrinks). So the interest portion of each payment would decrease with each payment as the principal is paid down.

Typically everything is calculated based on the due dates compounded monthly (unless terms are specifically compounded daily). So if instead of adding extra principal to a scheduled payment (which she should have done), she made miscellanious payments at odd times, that could confuse you, because any payment made after a previous due date would be part of the next payment due. That may be why interest showed up on payments made at unscheduled times.

Without the full accounting of scheduled and unscheduled payments and balances at the time it would be hard for anyone to guess if everything was correctly credited or not. But if it was eventually computerized by a bank, I would hope they know what they are doing.

But maybe now that you know that interest for any month is 0.66667% of the balance after principal (not interest) payments by the previous due date, it will be easier for you to figure out if anything is out of line

[FlyingRon]

She needs to make it clear that the extra payments are to be applied to the PRINCIPAL ALONE. The banks will just assume they are early payments of the next due interest. Most loans actually credit the principal paydown on the day it is made which means that if you pay monthly but consistently a week early, you'll probably pay off a few payments early at the end of the loan.

[jpathfynder]

1) November 2007 $135 (payment) $19.92 was the charged interest (wich by my math equals 14.75556%)
2) December 2007 $135 (payment) $17.66 for interest (13.08%)
3) 2007 satement shows them taking out $347.20 for interest. If i am not mistaken, they should only have taken out $129.60 (8% of $135= $10.80per month).

on regular payments, assuming a balance in the 13,000 range, your monthly interest payment should be around:

.08 / 12 = .00667 x 13,000 = $86.67

The 2007 total interest should be just over $1,000 bucks, unless the mortgage balance has been paid significantly down by the principal only payments.

[seniorjudge]

Originally Posted by FlyingRon

...
She needs to make it clear that the extra payments are to be applied to the PRINCIPAL ALONE.
...

To the high school principal or the grade school principal?

(I am not responsible for my own actions. )