# What is wrong with my simple interest on my mortgage?

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I have a loan that I have 8 payments so far. The original loan amount was \$ 139,650 at a simple interest rate of 8.5%. Interest accrues on an annual basis. The Bank calculates my monthly payment to \$ 1,130 / month. Ok, so I am always willing to sell the house, and I call to ask the bank how much I still owe on the house. They tell me \$ 139,400. Only \$ 250, I’m going to pay 8 payments of \$ 1,130 (ie \$ 9,040) paid! I = PRT I = 139,650 \$ * 0.085 * 1 = \$ 11,870.25 in interest this year: I made this calculation. \$ 11,870.25 / 12 = \$ 989.19 per month interest. This should mean that I pay \$ 1130 – \$ 989.19 = \$ 140.81 per month in principle, which is about \$ 1.125 in 8 payments! So why did I only paid \$ 250 for the principle? What I miss here?

hottotrot1_usa
February 20, 2011 at 3:35 pm

Ask the bank for a detailed breakdown/statement of your payments and how they were applied: interest, principle, escrow, etc.

Phaedra T
February 20, 2011 at 4:06 pm

Amortization, you pay all the interest of the loan in the beginning of the loan, so yes its simple interest but its how the interest is amortized in the detailed payment break down also ask for an amortization schedule, also interest accrues daily.

Sophiesmama
February 20, 2011 at 4:16 pm

when they calculate the payoff amount for you they are adding in interest to the anticipated payoff date, so your payoff amount will be higher than your principal balance.

m j
February 20, 2011 at 4:25 pm

Silly….they (the lender) will keep adding interest on top of interest on the remaining balance each and every month that the loan balance is not paid off! So each month you are paying off a new balance from the last month….review your Truth in Lending statement that is given to you (by law from lender) or email me so I can run an “amortization schedule” of payments for you….you CANNOT utilize a regular calculator for payments unless you have the “interest payment factor” formulas to use. email me at: mjmeansbusiness@yahoo.com

ticketoride04
February 20, 2011 at 5:14 pm

their figures are right, you may not be considering impound taxes, impound ins on monthly basis.
additionally, figure your cancellation costs for prepay on an initial rate first quoted and see if any or all of these have been removed in addition to the interest and not come up with a new figure.
also go to the branch and get a printout of your account monthly, you can do that, and on that statement that you would normally get annually, will show all the disbursements and debits that were charged to your acct.
Don’t for get late charges, if you paid and it didn’t get there on time and you were chg-ed for being late and you forgot!

Justin
February 20, 2011 at 5:58 pm

Your payoff will always be higher than what your balance shows. This is because your lender is owed their interest up until the exact day that your loan is paid in full.

Also, the principal amount that goes to your loan every month is not correct, since interest is “front-end” loaded, meaning that the majority of your payment is interest for the first half of the loan, until it reverses and you start to pay more towards the principal than interest. If you’ve only made 8 payments thus far, your principal owed has barely been touched.

Hope this helps!

exitbrian.com
February 20, 2011 at 6:47 pm

I read the other answers and I think simplicity may help. A mortgage that is amortized over a period of time while keeping the payment constant requires a greater portion of the payment be applied to interest in the early years of the loan. As the loan nears maturity, a greater portion of the monthly payment will be applied to the outstanding principal.

franklin flowers
March 18, 2012 at 7:52 pm

I believe that on a “simple interest” mortgage, your interest is calculated on a daily basis per payment period. So in order to avoid paying the full interest on your monthly payment is to submit your payment early. (Not such a bad deal if youare able.)

Conceivably, you could avoid paying interest altogether by paying your payment 30 days in advance.