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Mortgage interest charged when you make "EARLY" large pricipal payment?

I will try to use realistic numbers related to above question. I had first mortgage on my primary residence with balance of over $120,000 in early 2009. The mortgage was a first with 15 year and 5.25% interest.

Regular monthly payment was $2,210.

I started to make additional $10,000 'principle' payment from 1/1/2009.

My rationale was to get credit for this amount from the day bank put it on their books. Sometimes it was 20 or 15 or 10 days earliar than monthly due date.

The question is why bank would charge interest based on last months balance? They did not explain why, but just kept replying that it is the bank policy. If you make large payments you would not get credit for lower principle to calcualte monthly interest.

This went on for 2 -3 months with me hoping it would be resolved in my favor. Than, somewhere in March-April I had principle balance of $75,000. And again I paid that amount 20 days ealiar and asked for reduced interest. AGAIN, I was charged for balance of over $77,000 for whole month.

Can someone explain if I can fight this further when the Chase Home Finance is not explaining anything than saying it is their policy.

Now, I have taken out an line of credit from Bank of America for $75,000 with current rate of 2.99% per year. I keep paying additionaql premium every month on diffrent dates amounting to almoswt $10,000 towards the principle. I DO GET FULL CREDIT BY EACH DAY OF REDUCED INTEREST ON THIS LINE OF CREDIT.

Why I get credit from B of A while Chase does not explain???

What agency can I contact for California residence loan from Chase???

2 Answers

  • 1 decade ago
    Favorite Answer

    the mortgage interest calculations are detailed in your mortgage loan papers.

    they are probably doing exactly what the contract says -- something to the effect that "all amounts received will be treated as if received on the next periodic due date" -- which means that a full month's interest is assessed based on the previous month's outstanding balance, no matter what.

    btw, it is the same when you pay off the loan due to a sale -- they get a full month's interest no matter how many days the funds are early.


    the agreement for your line of credit probably says something different -- such as "average of the balances calculated for each day of the month" as how interest is determined.

    Source(s): retired banked and ex-mortgage banker oh -- who to complain to -- California mortgages are regulated by the Legislature. Complain to your Assemblyman or woman. Don't expect any action though -- they can't balance the state budget and your issue is small potatoes compared to that.
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  • Anonymous
    1 decade ago

    Most mortgages are simple interest, which means it's a set amount each month. If you make an add'l payment, first the regular payment is posted. Then the add'l payment reduces the balance from the next payment.. A line of credit is not a set amount each month. Which one is better? They're all out to make money from the consumer.

    Source(s): Retired bill collector 35 years
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