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View Full Version : A hidden glitch in my mortgage?

mangeorge
10-29-2005, 03:15 PM
There's thin fellow at work who insists that if I pay my mortgage ten days after the due date every month it's going to cost me more over the life of the loan. Others say they've heard the same thing. The world of high finance is somewhat a mystery to be, but this just doesn't make any sense.
To keep things simple, I used round numbers to argue my case, ie, 360 months @ \$2000/mo = \$720,000, whether I pay on the 1st or on the 11th. He says it's not that simple, 'cause of escrow and the like.
Am I missing something here, as I wallow in my financial naivete? Shall I :smack: ?
BTW; late charges don't kick in until the 16th.
Thanks,
mangeorge

mangeorge
10-29-2005, 03:20 PM
There are a couple small errors in my post, but they are intentional. They were inserted as a test of the character of those who might reply. :p

chrisk
10-29-2005, 03:44 PM
There's thin fellow at work who insists that if I pay my mortgage ten days after the due date every month it's going to cost me more over the life of the loan. Others say they've heard the same thing. The world of high finance is somewhat a mystery to be, but this just doesn't make any sense.
To keep things simple, I used round numbers to argue my case, ie, 360 months @ \$2000/mo = \$720,000, whether I pay on the 1st or on the 11th. He says it's not that simple, 'cause of escrow and the like.
Am I missing something here, as I wallow in my financial naivete? Shall I :smack: ?
BTW; late charges don't kick in until the 16th.
Thanks,
mangeorge

Well, the bank is charging interest on the money that they loan you. If the interest is calculated daily, then obviously the higher your balance is on any given day, the higher the interest will be and the more you'll have to pay in the end. If you pay on the 11th instead of the 1st, then your balance will be 2000 higher for those 10 days. Same thing if the interest is only calculated once per month, based on the average balance over that month.

If the interest is calculated every month on the 15th, using only that day's balance, then you're right and it doesn't matter. I don't know enough about mortgages to say more than that.

Exapno Mapcase
10-29-2005, 04:08 PM
There is no difference in cost in paying the monthly mortgage bill at any time before the late charges kick in.

However, I have heard that mortgage companies really want the payment in by the due date. They allow you a few extra days because of the vagaries of the mail and peoples' circumstances, but that it doesn't look good on your record if you consistently pay after the due date but still before the late charge. You certainly won't get the benefit of the doubt if a check goes astray, and this could trigger a default, even after one incident.

It may be this that people are confusing with higher costs.

Shagnasty
10-29-2005, 04:47 PM
However, I have heard that mortgage companies really want the payment in by the due date. They allow you a few extra days because of the vagaries of the mail and peoples' circumstances, but that it doesn't look good on your record if you consistently pay after the due date but still before the late charge. You certainly won't get the benefit of the doubt if a check goes astray, and this could trigger a default, even after one incident.

I have serious doubts about the likelihood of this. My mortage is due on the last day of the month but there is an automatic 15 day grace period. Our payment usually arrives on about the 7th or 8th of the month. There has never been a problem. There also isn't a problem at all with our credit score because those calculations don't kick in at all until your are 30 or more days late. You can do that every single time (like we do) and there isn't a problem. Due to accidental negligence, we missed a payment last year and got a call from the bank. We sent it in right away and they got the check towards the end of the month. We payed a fee and some interest but it didn't affect credit and the bank didn't seem to hold it against us. They got their payment and extra money.

10-29-2005, 06:06 PM
I agree (I think - this whole mortgage thing is brand new to me) because when I lost my job (57 days after closing on my house) the first thing I did was call the mortgage company, whereupon I learned that they don't even report my payment as "late" until it is 30 days past the grace period date - in other words, it has to be 45 days late before I suffer any consequences (other than the late charge). Then a month came up where I was going to have to put this to the test, and upon calling again (and not mentioning I had already been told this) I got the same information. I was assured both times that I would have to be 45 days late before any black mark showed up on the national credit reports or with them.

I'm sure that may vary from mortgagee to mortgagee, though.

kanicbird
10-29-2005, 09:41 PM
I think the point is that you owe interest compounded daily. So the amount you owe increases every day you didn't make a payment. If you pay late you allow a bit more interest to accrue on that money you would have paid sooner, meaning your total loan will be higher. Or in other words, lets say you have a loan w/ \$1000 remaining, if you pay \$1000 now you will owe nothing, but if you wait till 8 days later you will owe \$1001.12, so after payment you will still owe \$1.12.

Exapno Mapcase
10-29-2005, 11:03 PM
Every mortgage I've ever had worked in exactly the same way: one monthly payment if you pay on time and a larger one if you are late. Mortgages do not change by the day.

As for the responses from Shagnasty and lorinada, while of course everything with a mortgage varies from company to company and with circumstances, I think they are confusing what a mortgage company's normal policies are with what a company can legally do if it wishes. The company can let you slide without a black mark - they just don't have to. They have tremendous leeway. In fact, most mortgages that I've read give the lender the right to terminate for a missed payment.

Most would never do such a thing - it's far better for them to collect the whole mortgage than force a quick sale for probably less than a house is worth - but your history with a company can have consequences. With a mortgage I would rather act as conservatively as possible.

David Simmons
10-29-2005, 11:10 PM
Every mortgage I've ever had worked in exactly the same way: one monthly payment if you pay on time and a larger one if you are late. Mortgages do not change by the day.

As for the responses from Shagnasty and lorinada, while of course everything with a mortgage varies from company to company and with circumstances, I think they are confusing what a mortgage company's normal policies are with what a company can legally do if it wishes. The company can let you slide without a black mark - they just don't have to. They have tremendous leeway. In fact, most mortgages that I've read give the lender the right to terminate for a missed payment.

Most would never do such a thing - it's far better for them to collect the whole mortgage than force a quick sale for probably less than a house is worth - but your history with a company can have consequences. With a mortgage I would rather act as conservatively as possible.I agree with this. Mortgages that I have dealt with always charged interest at the rate of 1/12 of the annual interest each month regardless of when you made the payment. If the payment was after the due date plus a grace period a late charge was added. I never heard of a house mortgage with interest computed by the day.

Read you mortgage to find out for sure and if you are really concerned ask your lender.

mangeorge
10-30-2005, 11:06 AM
I did ask my mortgage company, but the nice woman I talked to was pretty cagey with her answer. They want the payment on or before the due date.
I'm paid bi-monthly. I could pay out of the last paycheck of the previous month, but I prefer to have use of that money myelf. I suspect that this may be the same reason the mortgage company wants the earlier payment, but I'm not sure. After all, I am paying for a service and should be accomodated. In this kind of instance, anyway.
However one does it, though, it only counts once. Thereafter the period between payments remains the same.

Gfactor
10-30-2005, 02:28 PM
Paying late one month does not affect the overall interest paid on the mortgage. Most mortgages in the US have precomputed interest. This means, as others have said that interest is incorporated into scheduled monthly payments. If you pay late, you owe a late fee. And even if the company that winds up servicing your mortgage does not like you consistently paying late, there is no way for other companies to know about your habits. The first late payment category on a credit report is 30 days late.

Some lenders have offered simple interest mortgages (http://www.mtgprofessor.com/what_are_simple_interest_mortgages.htm). Those mortgages involve daily interest calculations, and are sensitive to late payments. So on a simple interest mortgage, it will hurt you to pay late. OTOH, I just googled "simple interest mortgage" and found no lenders offering them.

David Simmons
10-30-2005, 05:49 PM
However one does it, though, it only counts once. Thereafter the period between payments remains the same.Well, if it's a daily interest computation is depends upon what period is used for computation. If they compute on the number of days since the previous months payment this is true. However if the computation is from the previous months due date than you're paying extra and unnecessary interest.

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