Deferred Interest

[jf1964]

What is the name of your state (only U.S. law)? missouri

I have a second mortgage. I am and have always been months ahead of my payments. In fact, my next due date, according to my statement, bill, and their people on the phone, is June 3.

Two weeks ago I noticed Deferred Interest of almost $1,000 in a paragraph at the bottom of my bill. I looked up on their site what it was for and it is charges for being late.

I called them, their call center must be in India since I always get a foreigner. Before I asked him about the Deferred Interest, I asked about the due date and verified that I was not late all last year. Then I asked why I am being charged Deferred Interest and accumulated it all last year. After arguing with him for a while, he put me on hold for about 10 minutes. He then came back on and said they will just send me the proof I owe it in 6 days and ended the call.

Well, I still have not received "proof." I went all through my contract and it only talks about the due date.

I feel like they are ripping me off and if I didn't happen to read the paragraph at the bottom, I would have accumulated much more of this fee. This information is not in the area where they list the balance, due date, interest, and all the relevant data.

I am pretty sure I am not wanting to pay this stupid fee since I've not been late according to their due dates - ever. And I have all my statements to prove it with due dates on them. But I also do not want to randomly accumulate more of this and be SOL after I make my last payment and have thousands of dollars of "Deferred Interest" to deal with.

Any recommendations? Thank you very much for any advice.What is the name of your state (only U.S. law)?

 

[tranquility]

Send a letter to the correspondence address stating your concerns. See what they say.

 

[jf1964]

Thank you for your response and I will mail a request for them to verify and justify the fees tomorrow. I'll probably certify the letter also. Do you think two weeks would be a reasonable time to wait before I think of something else to do?

 

[tranquility]

Two weeks? Not really for something like this. You have time. While I usually like to add a date of response to my letters, it's not going to motivate the bank here. They will answer a properly mailed letter. It's not like you're dealing with a guy you're trying to intimidate. The more you try to make the letter all official, the less likely you will get an acceptable response quickly. If the letter looks like a legal threat, it will go to legal where an attorney will review it before a response. Why increase response time? You don't want to think of something else to do, you want the problem fixed.

I'd go with honey right now--without a touch of vinegar.

 

[cherylsarah01]

You have to make sure of what type of loan you have. This may not be late charges at all but deferred interest on the amount of the payments you are making. How long have you had this loan? Do you know if it's a Neg Am loan or an ARM? Is it a home equity line of credit (HELOC)?

A mortgage loan that allows the borrower to make minimum payments that are less than the entire amount of interest owed. The remaining interest is added to the amount of loan to be paid off. This is considered to be a negative amortization. The homeowner will let interest accrue, and will ultimately owe more than the original value of the loan. An adjustable rate mortgage (ARM) might offer this sort of payment structure.

By making minimum payments that do not cover the loan principal, the balance on the loan is unlikely to get smaller since the interest is calculated on the outstanding principal. While low minimum payments do give the borrower payment flexibility, homeowners might not fully understand how complex this sort of mortgage can be.

If after you find out what type of loan you have then you can determine that there should be deferred interest or not.

I have seen this many many times in my line of work that the borrower does not understand or know how their loan works.

 

[jf1964]

Per my Loan Repayment and Security Agreement, it is a fixed rate loan with 1/12th rate times the balance, calculated every month. Per my bill though, I just noticed, it states interest is calculated daily.

The Truth in Lending amortized the payments out 15 years from the start date, 2005, which I am guessing is why they say I am ahead on my payments because I always pay an extra $100 or more if I can.

But the deferred interest I am concerned about is a totally separate amount of money that is growing. And it states right on my bill beneath the Deferred Interest:
Payments made after your due date, but within the grace period, result in additional interest charges but no late fees.

I took your advice and wrote a nice letter, took me two days, and was going to mail it in the morning. But now I might have to add a question about the daily interest item also. I don't think they are actually calculating it daily and if they are, I will never get this thing paid off without giving them half my wages until retirement.

Frustrating, I sometimes just want to let them have the dang house. It's falling apart anyway. But I won't. I'll get this resolved.

Thank you.

 

[cherylsarah01]

You have a simple interest mortgage. There is usually no grace period in a simple interest mortgage. If a payment is made later than the first of the month, interest must be paid for the days after the first of the month on the entire loan balance. This is different than a traditional mortgage where a payment made during the grace period remains based on the principal balance amount as calculated for the first of the month.

 

[FlyingRon]

You have a simple interest mortgage. There is usually no grace period in a simple interest mortgage. If a payment is made later than the first of the month, interest must be paid for the days after the first of the month on the entire loan balance. This is different than a traditional mortgage where a payment made during the grace period remains based on the principal balance amount as calculated for the first of the month.

That's the way every mortgage and car loan I've ever had has operated. I don't know what "traditional" mortgage you obtain that allows you to make late payments with impunity.

The interest is computed based on the date the payment is actually received.

 

[jf1964]

They responded and I see what’s going on now. Even though my contract says interest would be computed monthly, they are in fact doing it daily, simple interest as you said.

The Due Dates they list on the bill are meaningless but I am sure it fools a lot of people into thinking they are “paid ahead”, which it also states on the bill.

The deferred interest is being computed from the days following the day they expect a payment. So, even though my payment is not “due” until June, or whatever it is right now, if I didn’t cover the interest on the day they expect payment for the month, the interest computed is moved into deferred interest regardless of my due date.

If it were computed monthly though, this would not be a problem. Yes, I did make payments within the week of the first of the month on occasion and not on the first… heck, I was paid ahead!

Does this sound correct? If it does, I’ll probably copy the page of the repayment terms in my contract and ask them about the monthly calculation – why has it changed? Or would this not change the outcome like I think?

I almost quadrupled my payment on this month's payment because I want rid of this. I have never had this issue with my first mortgage. That one makes sense.

Thanks...