paying off fixed mortgage – question
Question: My question is about paying off a fixed mortgage [..........] >Some people shorten the life of the mortgage by adding an exrta amount to >their regular payment, or pay the bank an occassional lump sum. >The extra amounts go to increase the equity, [.................] >My question is for the case when the payment is not re-adjusted and >stays the same. In this case, the bank tells me that the interest part As it turns out I got the wrong information. After checking with a reliable bank official, it turns out that the interest part is calculated by them according to the current balance. Their formula is
next_payment_interest_part = current_balance X rate / 12
TWO bank OFFFICERS at TWO differnt branches gave this wrong information, which caused me much confusion (I asked the second officer in different branch, because I did not believe the first one).
The lesson learned is to check with the right people.
The issue if it worth to prepay/accelarate the mortgage life is a separte issue.
Thanks for all of you who answered, and sorry for wasting your time.
Answer: According to some of the things I’ve read, there *is* such a thing as ‘back-end’ prepayment credit, under which you pay both principal and interest according to the original schedule, with principal being reduced for prepayment from the back to the front, e.g., pay off enough principal to cancel payment 360, pay off enough to cancel payment 359, etc. Thus, an advance-paid loan ‘falls off the end’ sooner than if the prepayments were not made, but nowhere near as fast as if prepayments were credited up front. Apparently this isn’t very common, and may not be legal for mortgages in some (or most) places, but some of the schlock ‘Instant $5000′ loan stuff that shows up in the mail seems to be structured this way–you owe all scheduled interest instantly, no matter how fast you pay it back.
So it’s possible that some of the bankers were telling you the truth, while also screwing their customers….
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