Interest on prepaid principal

[justmesue]

What is the name of your state? Kentucky

Hi. We recently bought a second home in Kentucky with a 30 year mortgage, no prepayment penalties. The original bank sold our mortgage to Countrywide before the first payment was due. I sent Countrywide individual checks, clearly marked principal only to prepay the principal for the first four months, along with three additional checks, also clearly marked to prepay the mortgage for four months. I also included a detailed letter explaining how the payments were to be applied. Can they charge us interest for principal that has been prepaid? Thanks.

Sue

[efflandt]

If there is no prepayment penalty, then any extra payment marked to pay principal should apply towards paying down the principal on the date the next payment was due (unless a type of loan compounds daily). Note that checks for 4 months of principal and 3 months of scheduled payments would only cover 3 months of scheduled payments. The extra principal payment would not get you out of any scheduled payments, it would just reduce the total interest you pay, and reduce number of payments at the end, or payoff amount.

I cannot imagine why someone would make multiple sceduled payments at the same time, which could cause confusion. Is there some reason you could not set up those payments to be paid when due, either automatic withdrawl by the mortgage company (mine gives me an interest break if I autopay), or using the bill pay feature of your checking account?

Have you noticed an actual problem with on-line accounting or just speculating?

[pojo2]

Originally Posted by efflandt

it would just reduce the total interest you pay, and reduce number of payments at the end, or payoff amount.

Just to emphasis you will notice no change in the month to month activity, your payments will remain the same with more going to the principal as time goes on and you keep making pre-payments of principal.

Keep immaculate records and trails of your payment activity, save every check and every statement until you sell this property and then a few years beyond. Especially with Countrywide.

Why 4 checks for the extra principal, why not just one lump sum check clearly labeled extra principal? Assuming all these checks would be cashed immediately upon receipt.

[nextwife]

I have been 'accelerating" my amortization as well, throwing additional amounts toward principal each month,. Over eight years, these small extra payments have really brought down the principal. I figure my mortgage will be paid off in a total of about 18 years.

I obtain a statement from my lender each payment which SHOWS the payment breakdown, how much is applied to P&I, then how much additional to principal, then the new principal balance.

[justalayman]

One thing I have not seen is this post is the fact that the early payment of the regular monthly payments early will also reduce the interest total. Although in the early stages of a mortgage the principle portion is quite small it would still reduce the interest some.

Get at least an annual amortization schedule of your mortgage. Sometimes it takes nearly a rocket scientist to apply the math to such a varying situation but this way it can be checked and corrected.

[justmesue]

Hi all. Thanks for the replies. It used to be that interest could not be charged on principal that had been prepaid. Even on our current mortgage in Florida, the amount of interest charged was reduced for that month according to how much extra principal we paid for that period. The reason I made seperate checks, and prepaid the principle was because we thought that interest could not be charged for principle that was prepaid. We will be paying the mortgage off in the next few months after we sell our home in Florida and we wanted to avoid as much interest as possible. We have an ammortization schedule to follow which was provided at closing. Thanks again.

Sue

[justalayman]

I am not even suggesting you follow the amor schedule you got at closing. That would be based on monthly payments posted on the due date. What you need is a schedule that lists what you have actually paid. It will have the corrected priciple as you payed additional and will reflect the results extrapolated for the entire mortgage.