Ask the Dolans: Is my bank calculating my mortgage correctly?

Penny Beware! If you are using Bank of America for your mortgage and you ask them to start reapplying your principal payments, you may find yourself in a nightmare. Something similar happened to me just about a month and a half prior to selling my home and they couldn't straighten it out right up until the day of my closing...it was a scary, terrible nightmare. I'm lucky I didn't have a heart attack just trying to communicate the problem over and over and over again...everytime to different people. Closed out everything with Bank of America after that. Just Beware. And the bank manager is useless once you enter into their hierarchy. Good luck!

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The banks are free to do anything they choose. All the wonderful advice about working with the banks or the Mortgage lenders sounds wonderful. But what the bank says goes unless you have hundreds of thousands of dollars to pay a lawyer or unless you are just plain lucky. For example, if you set up an automatic on-line payment, it will be taken out until there is no more money in your account. Calling or writing is supposed to allow you to stop it. If I set up a payment from my bank to my mortgage company or set it up with my mortgage company to withdraw it from my bank, if I try to stop it by contacting either party, it may take 6 months for it to stop, if then! Calling, writing, emailing, forget it! It is against Federal Law but they don't care. GMAC asked for a check fro my account with a bank to pay their inspector. I wrote a check for $220. I looked at my statement and there was a $350 electronic withdrawl to GMAC. When I complained, pointing out that I had not signed permission and had written a refusal of permission to withdraw any money electronically, their response was, "We always do it that way anyway." They even still had my handwritten check. So save up for a lawyer, don't believe anything you are told, get everything in writing and SIGNED by someone in front of you (preferably the president or senior manager of the branch). Nothing has changed from two years ago except the government has banned mortgages which the banks refuse to write anyway.

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Unfortunately, Penny, Ms Dolan is giving you vague, erroneous information. The Rule of 70 is a calculation method that is a way to estimate the number of years it takes for a certain variable or investment to double. I believe she is talking about the Rule of 78s, which is typically used in subprime auto loans and the like. Just Google Rule of 78s and you'll get a description of this method. It is not normally used in mortgages. Almost all mortgages use the Simple Interest method, in which the interest for the next payment is calculated on the principle balance at the time the current payment is received. Also, if you pay your bills online, you can generally designate where the excess portion of your payment goes(interest, late charges or additional princple). The transaction is stored online to view and you can print a copy of the transacation for your records. This is pretty basic stuff. Ms Dolan obviously doesn't understand how interest is applied or she wouldn't be giving you false info.

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Actually, it isn't true that "anything goes" when it comes to your mortgage. Is this a regular amortizing mortgage? You should ask your lender (or whoever is servicing your mortgage) for an amortization schedule. WHO ARE YOU SENDING YOUR PAYMENTS TO? It could be third-party servicer acting on behalf of your lender. If it is a true amortizing mortgage, your payment should be split between interest and principal according to that schedule AND applied to your loan as if it were received on the first day of the month (or whatever day your mortgage is due! It will pay interest through the last day of the previous month. Even if you're late, it should be applied as if it were received on the due date. Please note that I say APPLIED not POSTED. It will always be posted on the date received. Caveat... IF you pay after the grace period, you can be assessed a late charge (if it stated in your Note) and then your payment will PROBABLY be applied first to the late charge, then to interest, then to principal - in that order. This is typical industry standard practices. AND if you pay MORE than your regular monthly payment, MANY times you MUST tell the lender how you want he extra money applied (i.e. apply overage to principal); otherwise, they could apply the overage to your next payment due, applying it first to interest. BUT, you MUST read your Promissory Note. It is your legal operative document that your lender/servicer MUST abide to. It is a CONTRACT. IF your mortgage interest is SIMPLE INTEREST and the NOTE states that your payment is applied to interest as of the date your payment is received, THEN, you will not be able to follow an amortization schedule, even if one is provided. The amortization schedule will ASSUME you make your payments on the DUE DATE. So, if you make your payment on the 5th of the month and it is DUE on the first, your payment will pay interest through the 4th day of that month (not the last day of the prior month - interest is always paid in arrears). This could be why more of your payment is going to interest than your amortization schedule shows. Remember, your payment is DUE on the DUE DATE. One last thing, your residential mortgage, secured by your home, is regulated by RESPA, and the Fair Credit Billing Act. It gives you certain rights and REQUIRES your lender/servicer to ACKNOWLEDGE receipt of your WRITTEN request (not phone call) within a certain number of days (I think it's 20 days). Your statement should provide an address for you to send BILLING INQUIRIES (probably NOT the address where you send your payment). Then they still have an additional number of days to respond in writing to your question, or solve your problem. Google on the internet, the term RESPA, to read about your rights. This information I am providing is not meant to cover all situations (for example, if your loan is escrowed for taxes and insurance there could be other ways to apply your payment - READ YOUR NOTE!). A car loan or other NON-REAL ESTATE secured loan will not fall under RESPA guidelines, but should under the Fair Credit Billing Act. REMEMBER, your NOTE is and always will be, your legal contract. Read it.

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