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Allocation of Extra Mortgage Principal Pmt


I just made a largish extra principal payment on my home mortgage. My normal payments are due on the first of the month.
The bank allocated the payment as 1. Advance payment of the Mar 1 amt due with principal and interest breakdown as it would have been at that date. 2. Balance applied to principal.
They also indicated the next mortgage payment not due until April 1.
Assuming I plan to make my regular payment as of Mar 1, does this type of allocation make any difference? Or should I insist that the entire amount be applied to principal (which they will do, if I call)?
Thanks. --ron
Reply to
Ron Rosenfeld

When it comes to this process it's as if Banks are still working with paper ledgers, not modern computers. For standard fixed rate mortgages, making the 'due on the 1st' payment weeks in advance or up to the last day of grace period has no impact on accruing interest. Further, as you discovered, they typically do not apply 'principal only' payments without a full mortgage payment along with it. I don't know how large this was, but very worse case, the money was all applied as if it were received on 3/1, and your loss was about $1.20/thousand/week. When you look at the account next, try to figure out if that extra principal was applied as of date received or as of 3/1. Pushing to have them override the system probably isn't worth your time, and your chance of success is slim.
Joe
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Reply to
JoeTaxpayer

On Thu, 18 Feb 2010 08:31:26 -0600, JoeTaxpayer wrote:
Thanks Joe.
The payments were all posted as of yesterday, the 17th. The amount that was equal to the Mar 1 regular payment was, as I wrote earlier, allocated as it would have been had the payment been made Mar 1. So I did not get the benefit of the extra days of reduced principal.
The balance did reduce the mortgage owing as of the 17th. I am assuming that the allocation of my next regular mortagage payment will reflect that, but I guess I won't really know until the time comes and I can see the actual allocation.
But I will be sure to check that. 1.20*1000*2weeks is much better off in my pocket than theirs, and is significant enough to make the effort.
And FYI, at least with Wells Fargo, it was not a big deal to call and have the payment reallocated all to principal. From the responses of the customer service person I spoke with, it seemed to be a procedure with which she was quite familiar. --ron
Reply to
Ron Rosenfeld

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