Posted on: 22nd Sep, 2008 07:41 am
I received a letter from my 2nd mortgage holder stating that my loan had been calculated using daily simple interest but that was not in accordance with my contract. They are reversing all payments and changing it to normal amortization. Which one pays the loan off faster? Thanks!
there are definite benefits to a daily simple interest program. if you prepay, you'll see immediate results in decreased interest. furthermore, if you pay prior to the due date, you'll also see a reduction in interest costs. however, should you pay after the due date, you'd end up paying more interest over time.
with standard amortization, the benefit you'd be most likely to see is that you'd not be penalized for paying after the due date; while you'd also not receive any benefit from paying early.
it's a mixed bag.
with standard amortization, the benefit you'd be most likely to see is that you'd not be penalized for paying after the due date; while you'd also not receive any benefit from paying early.
it's a mixed bag.
Where in my contract should it state how the interest should be calculated? Thanks!
that's a tough question to answer, stretch. i think that's a good conversation to have with the lender. perhaps you'll want to engage counsel in this circumstance as well.
Thanks, I'll call the lender.
You would find this in your copy of loan documents you signed in title and in the body of the NOTE.
Hey :)
I have a quick question about daily interest calculations vs. amortization. From my understanding the two should tie out as far as interest paid at the end of the loan. but when im calculating the interest based on daily interest, im getting significantly less interest than the amortization calculation...
I have a quick question about daily interest calculations vs. amortization. From my understanding the two should tie out as far as interest paid at the end of the loan. but when im calculating the interest based on daily interest, im getting significantly less interest than the amortization calculation...
Hi
Have you discussed this with your lender? Because there is a possibility that the way you're calculating the daily interest may not be accurate. It's better to check it with your lender if the way you're doing it is correct. They'd be in a better position to tell you what's causing this significant difference.
Have you discussed this with your lender? Because there is a possibility that the way you're calculating the daily interest may not be accurate. It's better to check it with your lender if the way you're doing it is correct. They'd be in a better position to tell you what's causing this significant difference.
Since daily, simple interest loans do continue to accrue interest if your payment is late, don't get one unless the lender accepts partial payments without charging a fee. Then split your monthly payment into two equal amounts and pay them bi-weekly through automatic withdrawal. By going through this structure, you'll always be on time, you'll pay your interest down a lot faster, make an extra payment every year and you'll cut many years off your mortgage. Even if you are paying a point higher in interest, this structure will improve your interest paid versus a typical mortgage or even a SIM with a single monthly payment. If you are refinancing to save interest and don't care about the payment drop, continue to pay the same as what you have been. In other words if your payment drops from $1,000 to $800, make a $500 payment every other week and you'll most likely have your house paid for in half the time it would have with the typical mortgage. When your house is paid off in 12 years instead of 30, invest that monthly payment into something earning 10% (30 year average) or better and you'll most likely end up with as much in your pocket as you would have paid in interest had you paid your loan in the typical time frame.
Definately all such queries are related to lender.
Lender can better answer such things.
Lender can better answer such things.
What are the Benefits of Simple interest?
that's been touched on up above, leticia.
The key with simple and amortized loans is to not use either one exclusively. There is a technique used, when these two are combined, you are able to cancel out the majority of the interest accrued- the key is knowing how to structure it. The banks have it mastered, so don't bother trying to ask your personal banker- if they knew the secret- they won't tell you- but more often than not you will get the "deer in the headlights" response.
If you use your line of credit (simple interest line of credit) to periodically offset your amortized loan (fixed loan) in a way that does not consume your discretionary income, you can reduce the amount of interest paid to a third of what you would normally pay.
Does it require a little discipline? Yes. Does it require a change in lifestyle like a biweekly or carry the cost of a refi? No. The key is to use the line of credit like a checking account and make systematic payments on the 1st based on your discretionary income so that you are able to keep the second in check.
[Email address deleted as per forum rules. Thanks.]
If you use your line of credit (simple interest line of credit) to periodically offset your amortized loan (fixed loan) in a way that does not consume your discretionary income, you can reduce the amount of interest paid to a third of what you would normally pay.
Does it require a little discipline? Yes. Does it require a change in lifestyle like a biweekly or carry the cost of a refi? No. The key is to use the line of credit like a checking account and make systematic payments on the 1st based on your discretionary income so that you are able to keep the second in check.
[Email address deleted as per forum rules. Thanks.]
The key with simple and amortized loans is to not use either one exclusively. There is a technique used, when these two are combined, you are able to cancel out the majority of the interest accrued- the key is knowing how to structure it. The banks have it mastered, so don't bother trying to ask your personal banker- if they knew the secret- they won't tell you- but more often than not you will get the "deer in the headlights" response.
If you use your line of credit (simple interest line of credit) to periodically offset your amortized loan (fixed loan) in a way that does not consume your discretionary income, you can reduce the amount of interest paid to a third of what you would normally pay.
Does it require a little discipline? Yes. Does it require a change in lifestyle like a biweekly or carry the cost of a refi? No. The key is to use the line of credit like a checking account and make systematic payments on the 1st based on your discretionary income so that you are able to keep the second in check.
email address deleted as per forum rules
If you use your line of credit (simple interest line of credit) to periodically offset your amortized loan (fixed loan) in a way that does not consume your discretionary income, you can reduce the amount of interest paid to a third of what you would normally pay.
Does it require a little discipline? Yes. Does it require a change in lifestyle like a biweekly or carry the cost of a refi? No. The key is to use the line of credit like a checking account and make systematic payments on the 1st based on your discretionary income so that you are able to keep the second in check.
email address deleted as per forum rules
mehomey, that's a silly thing to say about bankers; that they won't tell what might be called trade secrets to borrowers. i worked in a credit union in which interest was calculated on a simple interest system, and i let all my borrowers know that, and advised them that by paying more frequently, they could save substantial amounts. i took advantage myself when i had my mortgage there, by making payments on a weekly basis, thereby cutting my balance down quite rapidly.
you've provided a lot of gas in that post, frankly. some of your concepts are too vague to be delivered as they should be to those who would like to know. please review it, and maybe you want to rewrite it to specify precisely what the differences are as you see them in the two types of calculations, and what someone might do. your reference to lines of credit didn't make a great deal of sense to me, i am afraid.
please don't take me wrong - a little editing is always good for the soul.
you've provided a lot of gas in that post, frankly. some of your concepts are too vague to be delivered as they should be to those who would like to know. please review it, and maybe you want to rewrite it to specify precisely what the differences are as you see them in the two types of calculations, and what someone might do. your reference to lines of credit didn't make a great deal of sense to me, i am afraid.
please don't take me wrong - a little editing is always good for the soul.
George,
I think they are espousing a trick I've heard of where you attach a line of credit to your mortgage and use it as a way to float your normal pay in a manner that is supposed to reduce the overall interest paid. I've attended presentations on it, and while the pitch is good, I was never able to wrap my head around the math well enough to really trust it.
It goes something like this. The line of credit is a cash-management tool whereby the line immediately pays down your mortgage by the total line amount. Lets say $10,000. You have your normal paychecks deposited against this negative balance, and you have your normal payments going out of the account too. By having the float on your cash flow applied against the line of credit, you can theoretically save money because y™re getting a daily interest savings, where you don really get that in the normal mortgage payments because of the differences described above regarding simple interest and normal amortization.
The problem becomes that yre usually paying a higher interest rate on that line of credit, so the savings to me is vague and nebulous. Ying off a higher interest rate against the float. There used to be a product that would allow you to do this right inside your mortgage itself using the note rate, but I dohink it exists any more. There are mortgages in other countries that allow you to operate in this fashion, but I think they are typically variable rate products.
Im sure there are more than a few people out there, who could pitch in with their version of the explanation, but this is what Ie been able to piece together so far. Thes a company called UFirst Financial that pitched them at a mortgage conference I attended in Vegas. Google results in a couple of top hits worth reading, one of the links had another link that lead me to a post at Mortgage News Daily that goes into a pretty good discourse.
Simple answer is, yes, there are tricks that work, but they ar easy, require all the right products, and you can technically do them yourself without paying someone $3,500 for some software.
I think they are espousing a trick I've heard of where you attach a line of credit to your mortgage and use it as a way to float your normal pay in a manner that is supposed to reduce the overall interest paid. I've attended presentations on it, and while the pitch is good, I was never able to wrap my head around the math well enough to really trust it.
It goes something like this. The line of credit is a cash-management tool whereby the line immediately pays down your mortgage by the total line amount. Lets say $10,000. You have your normal paychecks deposited against this negative balance, and you have your normal payments going out of the account too. By having the float on your cash flow applied against the line of credit, you can theoretically save money because y™re getting a daily interest savings, where you don really get that in the normal mortgage payments because of the differences described above regarding simple interest and normal amortization.
The problem becomes that yre usually paying a higher interest rate on that line of credit, so the savings to me is vague and nebulous. Ying off a higher interest rate against the float. There used to be a product that would allow you to do this right inside your mortgage itself using the note rate, but I dohink it exists any more. There are mortgages in other countries that allow you to operate in this fashion, but I think they are typically variable rate products.
Im sure there are more than a few people out there, who could pitch in with their version of the explanation, but this is what Ie been able to piece together so far. Thes a company called UFirst Financial that pitched them at a mortgage conference I attended in Vegas. Google results in a couple of top hits worth reading, one of the links had another link that lead me to a post at Mortgage News Daily that goes into a pretty good discourse.
Simple answer is, yes, there are tricks that work, but they ar easy, require all the right products, and you can technically do them yourself without paying someone $3,500 for some software.