Mortgage Interest

You don't specify the term of the loan, nor do the numbers quite add up, but the CORRECT way of calculating the interest you paid to the bank is to take the balence at the end of 2004, subtract the balence at the end of 2003 (you DID keep the YE statement from 2003, didn't you), and add back in the payments credited during 2004. That difference is the interest you should claim for 2004, regardless of the number on the 1098. If the bank miscalculated the interest, you can still only deduct what you actually paid.

Here's a simple check you can run on your excel: what was the mortgage balance before your first payment of 2004; subtract the mortgage balance after the last payment. Subtract that amount from the total payments you made in the year (excluding insurance and tax escrow payments). If that doesn't agree with the 1098, I'd use the calculated amount, not the 1098, and you've got the calculation to support it.

-- Tom Healy, CPA Boulder, CO Web:

No, it's not a tax question, per se, it's more simple math. But not so simple. There are different ways to make a payment, and different (legal) ways for the bank to apply. You said you made two extra payments to principal, but from the rest of your post, it's clear to me the bank simply applied those payments as though you paid the January and February payment early. Since the interest on 90,000 for the year would be $5175, having gotten a statement showing $5900 interest paid is what tells me they did this. To be clear, you need to find out if you're now making the next payment (i.e. one due 2 months hence) or if there was a mistake. This is a common issue when the bank doesn't take the money and apply it directly to principal. If I read all this correctly, your next payment is likely due in June and you can now use the money you'd pay in April and May and advise these payments are 'principal only'. Once squared away, you'll pay about $7 a month less interest, more principal. (BTW, 5900 + 4900 total 10,800, about right for the two year total) JOE

Sounds like they credited 13 payments in the $5900 year and 11 interest payments in the $4900 year. A web amortization calculator shows $5487 and $5414 for the first two years, i.e. right down the middle. The may have credited one of the "prinicpal" payments made in Dec as an advance payment in January.

Depending on when checks are cashed, you can accelerate or retard *one* payment's interval of interest a year. That means you can be credited for 11, 12, or 13 months of interest in a calendar year. IN the long run it averages to 12.