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Interest on additional payments
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cturner1010
Posted 2/14/2006 3:05 PM (#776)
Subject: Interest on additional payments
On a 30 year fixed loan, if I make several additional payaments and pay my loan off early, do I get a rebate on the interest I pre-paid?
James
Posted 2/16/2006 6:55 PM (#788 - in reply to #776)
Subject: RE: Interest on additional payments
Interest payments are always based on the current balance. By making extra payments, you are lowering the balance and thus lowering the interest payment due which increases the amount which goes toward the principle which is why you are able to pay off the loan earlier, so I am not sure what you mean by pre-paid interest. Please elaborate. jamesmisa@mypremierloan.com
cturner1010
Posted 2/17/2006 12:44 PM (#791 - in reply to #788)
Subject: RE: Interest on additional payments
The note calls for 7.75% yearly interest. So if I make 12 regular payments in the span of a year, the mortgage co. would receive 7.75%. When I make additional regular payments, the mortgage co. treats them as "pre-payments" and applies interest in the same manner as it does for the 12 scheduled payments. The result being that I pay more than 7.75% that year. So if I keep doing this year after year, I will pay my loan off sooner, but I will have been charged more than 7.75%. So my question is, do I get back the excess interest?
James
Posted 2/17/2006 5:07 PM (#799 - in reply to #776)
Subject: RE: Interest on additional payments
OK, now I see where your confusion is. The way you explained it is not how it works. Interest is charged on your loan only once a month. If that one time is on the 1st then whatever your balance is on the 1st of that month is the figure that your interest is calculated from. Any additional payments made on your account will go directly and entirely toward your principle. If what you are saying were true, there would be no savings when making additional payments, when in actuality, you can save thousands on what you pay overall by making additional payments. Hope this makes sense.
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