Did Chase Apply My "Additional Principal" Payment Legally?

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LMK5
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Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:10 am

Back on February 23rd I made a $5000 additional principal payment on my mortgage. I used Chase's payment form and checked the box "additional principal." I did not include the regular mortgage payment of $1052.39 in the remittance. I recently looked at my payment records and noticed that instead of applying the $5000 to principal, Chase pulled out the regular payment amount of $1052.39, which included $174.21 of interest, and applied the remainder towards principal. The very next day, February 24th, Chase received my regular payment of $1052.39 (sent in as usual by my wife). My statement shows that they charged $159.13 in interest as part of this February 24th payment.

Maybe I'm ignorant of amortized mortgages, but here are my concerns:
1) If my payment was not overdue and I checked the "Additional Principal" box on the form, wasn't Chase obligated to apply my entire $5000 to principal instead of first taking a regular payment out of it?
2) SInce they had taken the regular payment out on February 23rd (including $172.21 in interest), how could Chase charge $159.13 in interest when they received my regular payment the very next day? Shouldn't my obligation have been only one day's interest on the outstanding balance?

Can someone set me straight on whether Chase's actions were proper, and if so, how amortized mortgages work in this circumstance?
Last edited by LMK5 on Fri Aug 18, 2017 9:17 am, edited 1 time in total.

Nate79
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Nate79 » Fri Aug 18, 2017 9:14 am

When I have made extra principle payments (Wells Fargo but all online) I agree with what you say that it just goes against the principle. Payments are made separate. If making a payment but with extra principle on the same payment the extra principle is on top of the payment.

Since it sounds like you are using a paper form maybe they made a mistake. Did you call them yet?

Gill
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Gill » Fri Aug 18, 2017 9:16 am

I think they're treating the second payment as the March payment.
Gill

Gill
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Gill » Fri Aug 18, 2017 9:17 am

Nate79 wrote:
Fri Aug 18, 2017 9:14 am
When I have made extra principle payments (Wells Fargo but all online) I agree with what you say that it just goes against the principle.
I'm not clear what principle you're invoking. :happy
Gill

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:20 am

Nate79 wrote:
Fri Aug 18, 2017 9:14 am
When I have made extra principle payments (Wells Fargo but all online) I agree with what you say that it just goes against the principle. Payments are made separate. If making a payment but with extra principle on the same payment the extra principle is on top of the payment.

Since it sounds like you are using a paper form maybe they made a mistake. Did you call them yet?
I did call them and as far as taking out the payment from what I thought was additional principal, they just said "that's how it works." I did use a paper form.

Nate79
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Nate79 » Fri Aug 18, 2017 9:20 am

Gill wrote:
Fri Aug 18, 2017 9:17 am
Nate79 wrote:
Fri Aug 18, 2017 9:14 am
When I have made extra principle payments (Wells Fargo but all online) I agree with what you say that it just goes against the principle.
I'm not clear what principle you're invoking. :happy
Gill
The principle of banks not ripping customers off :)

Nate79
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Nate79 » Fri Aug 18, 2017 9:22 am

LMK5 wrote:
Fri Aug 18, 2017 9:20 am
Nate79 wrote:
Fri Aug 18, 2017 9:14 am
When I have made extra principle payments (Wells Fargo but all online) I agree with what you say that it just goes against the principle. Payments are made separate. If making a payment but with extra principle on the same payment the extra principle is on top of the payment.

Since it sounds like you are using a paper form maybe they made a mistake. Did you call them yet?
I did call them and as far as taking out the payment from what I thought was additional principal, they just said "that's how it works." I did use a paper form.
Perhaps it is in the wording. When you check the box "additional principle" it indicates additional principle on top of a regular payment. Is there a box for "principle only"?

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:23 am

Gill wrote:
Fri Aug 18, 2017 9:16 am
I think they're treating the second payment as the March payment.
Gill
You are correct. They applied the payment to the next month, because they told me I don't owe a payment until October. But how could they have charged me that interest on the payment received the very next day (February 24th)?

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:26 am

Nate79 wrote:
Fri Aug 18, 2017 9:22 am
LMK5 wrote:
Fri Aug 18, 2017 9:20 am
Nate79 wrote:
Fri Aug 18, 2017 9:14 am
When I have made extra principle payments (Wells Fargo but all online) I agree with what you say that it just goes against the principle. Payments are made separate. If making a payment but with extra principle on the same payment the extra principle is on top of the payment.

Since it sounds like you are using a paper form maybe they made a mistake. Did you call them yet?
I did call them and as far as taking out the payment from what I thought was additional principal, they just said "that's how it works." I did use a paper form.
Perhaps it is in the wording. When you check the box "additional principle" it indicates additional principle on top of a regular payment. Is there a box for "principle only"?
There is a box for the payment and a box for additional principal. I checked only the additional principal box and wrote in $5000 on the line provided. But you may be right, they may only intend for the additional principal to be effective if you are including a regular payment. But I still don't get how they could charge me interest on the payment they received the very next day.

neilpilot
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by neilpilot » Fri Aug 18, 2017 9:34 am

Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:36 am

neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?

omgbirdman
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by omgbirdman » Fri Aug 18, 2017 9:38 am

I ran into this with Honda Financial in the manner that they were applying my payments. Any extra I was paying was not immediately reducing principal, and was instead being treated as "paid ahead" meaning I could pay less with my next payment. This resulted in no benefit for me. I found out in order to have it work I had to submit my payment in a different way through their website, explicitly as an additional principal payment.

I would contact Chase and make clear what your intentions were, because as it is, they are going to charge you the same interest they otherwise would be, with the added benefit (for them) of having your money 2 months early.

neilpilot
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by neilpilot » Fri Aug 18, 2017 9:38 am

The normal interest, which would be credited as the next payment due. As you experienced.

You do not get "credit" for any early payments, only for paying down your principal.

pshonore
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by pshonore » Fri Aug 18, 2017 9:38 am

If you paid your regular payment a few days early, they would still charge you a full months interest; just if you paid it a few days late (but within the grace period), they would not penalize you. (Unlike my HELOC where interest is figured to the penny each month on the day when payment is received.) Evidently thats how all regular payments are processed.

student
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by student » Fri Aug 18, 2017 9:40 am

LMK5 wrote:
Fri Aug 18, 2017 9:36 am
neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?
I am not saying that it is right. It seems that they applied the principal and interest as if they had received it as the March payment on its due date.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:41 am

neilpilot wrote:
Fri Aug 18, 2017 9:38 am
The normal interest, which would be credited as the next payment due. As you experienced.

You do not get "credit" for any early payments, only for paying down your principal.
Evidently.

neilpilot
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by neilpilot » Fri Aug 18, 2017 9:43 am

student wrote:
Fri Aug 18, 2017 9:40 am
LMK5 wrote:
Fri Aug 18, 2017 9:36 am
neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?
I am not saying that it is right. It seems that they applied the principal and interest as if they had received it as the March payment on its due date.
Exactly. If this was a credit card bill, it would be credited differently. However, the standard mortgage agreement does not adjust monthly interest due based on anything other than the monthly amortized mortgage balance.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 9:44 am

pshonore wrote:
Fri Aug 18, 2017 9:38 am
If you paid your regular payment a few days early, they would still charge you a full months interest; just if you paid it a few days late (but within the grace period), they would not penalize you. (Unlike my HELOC where interest is figured to the penny each month on the day when payment is received.) Evidently thats how all regular payments are processed.
You appear to be correct. The question to me is: How can that be legal? I thought interest was accrued daily. Does including a grace period give them the right to NOT give you credit for an early payment, in this case 30 days early?

student
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by student » Fri Aug 18, 2017 9:50 am

LMK5 wrote:
Fri Aug 18, 2017 9:44 am
pshonore wrote:
Fri Aug 18, 2017 9:38 am
If you paid your regular payment a few days early, they would still charge you a full months interest; just if you paid it a few days late (but within the grace period), they would not penalize you. (Unlike my HELOC where interest is figured to the penny each month on the day when payment is received.) Evidently thats how all regular payments are processed.
You appear to be correct. The question to me is: How can that be legal? I thought interest was accrued daily. Does including a grace period give them the right to NOT give you credit for an early payment, in this case 30 days early?
Not that this is right but it is legal if it is written in the contract as neilpilot suggested in his/her post. However, I do believe that if you pay off the mortgage completely, then the interest stops on the day you pay it off. One can call to get the payoff balance.

CppCoder
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by CppCoder » Fri Aug 18, 2017 9:52 am

I have a Chase mortgage. On their website, if you choose to pay your mortgage, there are three boxes. The first is autopopulated with XX minimum payment due (where XX = my monthly mortgage amount). The next two are for additional principal and additional escrow. If I wanted to pay principal only, I have to click on the drop down that has my monthly mortgage amount and change that to principal and/or escrow payment only. I guess with paper, you can't adjust the minimum payment due part. In the future, though, you can do this easily online.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 10:00 am

CppCoder wrote:
Fri Aug 18, 2017 9:52 am
I have a Chase mortgage. On their website, if you choose to pay your mortgage, there are three boxes. The first is autopopulated with XX minimum payment due (where XX = my monthly mortgage amount). The next two are for additional principal and additional escrow. If I wanted to pay principal only, I have to click on the drop down that has my monthly mortgage amount and change that to principal and/or escrow payment only. I guess with paper, you can't adjust the minimum payment due part. In the future, though, you can do this easily online.
Excellent. Yes, I'll do it via their website next time.

JGoneRiding
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by JGoneRiding » Fri Aug 18, 2017 11:24 am

LMK5 wrote:
Fri Aug 18, 2017 9:36 am
neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?
most banks don't allow you to "pay ahead" they usually apply all overage to principle and expect full payment the next month. BUT interest is calculated monthly so regardless of when you pay you have to pay that months interest which is what sounds like happened. int for feb and mar

neilpilot
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by neilpilot » Fri Aug 18, 2017 11:30 am

LMK5 wrote:
Fri Aug 18, 2017 10:00 am
CppCoder wrote:
Fri Aug 18, 2017 9:52 am
I have a Chase mortgage. On their website, if you choose to pay your mortgage, there are three boxes. The first is autopopulated with XX minimum payment due (where XX = my monthly mortgage amount). The next two are for additional principal and additional escrow. If I wanted to pay principal only, I have to click on the drop down that has my monthly mortgage amount and change that to principal and/or escrow payment only. I guess with paper, you can't adjust the minimum payment due part. In the future, though, you can do this easily online.
Excellent. Yes, I'll do it via their website next time.
I suggest that, the next time, you pay the monthly payment due and the additional principal on the SAME payment slip. As a side note, the subsequent monthly payments after the $5k principal payment is credited will be the same, but the interest portion should be reduced to reflect your lower amortized loan amount. If the bank is quick to credit that $5k, then the advanced payment you inadvertently made, as well as all subsequent monthly payments, should be re-characterized to reflect less interest and more principal.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 11:40 am

JGoneRiding wrote:
Fri Aug 18, 2017 11:24 am
LMK5 wrote:
Fri Aug 18, 2017 9:36 am
neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?
most banks don't allow you to "pay ahead" they usually apply all overage to principle and expect full payment the next month. BUT interest is calculated monthly so regardless of when you pay you have to pay that months interest which is what sounds like happened. int for feb and mar
Which means you are not actually paying interest in arrears. You are paying a set amount of interest based on monthly payments over the full term. Would the following case be true?: If I have a 30 year loan and make a payment every week, will I still be required to make 360 payments of the same amount?

neilpilot
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by neilpilot » Fri Aug 18, 2017 11:47 am

LMK5 wrote:
Fri Aug 18, 2017 11:40 am
JGoneRiding wrote:
Fri Aug 18, 2017 11:24 am
LMK5 wrote:
Fri Aug 18, 2017 9:36 am
neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?
most banks don't allow you to "pay ahead" they usually apply all overage to principle and expect full payment the next month. BUT interest is calculated monthly so regardless of when you pay you have to pay that months interest which is what sounds like happened. int for feb and mar
Which means you are not actually paying interest in arrears. You are paying a set amount of interest based on monthly payments over the full term. Would the following case be true?: If I have a 30 year loan and make a payment every week, will I still be required to make 360 payments of the same amount?
No. For a typical conventional mortgage the interest portion of the total fixed payment decreased as the amortized amount of the mortgage goes down. The decrease in interest each month is slight at the start of the mortgage, but increases much faster near the end of the mortgage term. If you pay down a portion the principal early, the monthly payment stays the same but the interest portion is decreased to account for the payment. As a result, the amortization table is modified, resulting in less payments to payoff.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 12:03 pm

neilpilot wrote:
Fri Aug 18, 2017 11:47 am
LMK5 wrote:
Fri Aug 18, 2017 11:40 am
JGoneRiding wrote:
Fri Aug 18, 2017 11:24 am
LMK5 wrote:
Fri Aug 18, 2017 9:36 am
neilpilot wrote:
Fri Aug 18, 2017 9:34 am
Back when I had a mortgage, I made a few payments of additional principal. They were always made along with my normal monthly payment, which I believe is the way my lender expects it to be used.
That's reasonable. Now let's say you mailed a regular payment in on 2 consecutive days. How much interest should have been charged when they received your second payment one day after the first?
most banks don't allow you to "pay ahead" they usually apply all overage to principle and expect full payment the next month. BUT interest is calculated monthly so regardless of when you pay you have to pay that months interest which is what sounds like happened. int for feb and mar
Which means you are not actually paying interest in arrears. You are paying a set amount of interest based on monthly payments over the full term. Would the following case be true?: If I have a 30 year loan and make a payment every week, will I still be required to make 360 payments of the same amount?
No. For a typical conventional mortgage the interest portion of the total fixed payment decreased as the amortized amount of the mortgage goes down. The decrease in interest each month is slight at the start of the mortgage, but increases much faster near the end of the mortgage term. If you pay down a portion the principal early, the monthly payment stays the same but the interest portion is decreased to account for the payment. As a result, the amortization table is modified, resulting in less payments to payoff.
I guess I'm confused. I thought that what is being said in this thread is that the bank doesn't give you credit for paying early, they act as if you waited the usual period of time--in my case 30 days--and then just credit that payment for the next month. But what you're saying is that they do credit principal earlier, resulting in more rapid principal reduction and fewer payments over the term. As far as I can tell, both scenarios can't be correct. What am I missing?

Katietsu
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Katietsu » Fri Aug 18, 2017 12:33 pm

You got it right. Both scenarios are correct. In fact, the difference in calculations is one of the important reasons that you must specifically specify extra payments as principal if you want it credited that way. My auto loan payment works the same way though I do not know that they all do.
Last edited by Katietsu on Fri Aug 18, 2017 12:38 pm, edited 1 time in total.

TropikThunder
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by TropikThunder » Fri Aug 18, 2017 12:35 pm

LMK5 wrote:
Fri Aug 18, 2017 9:10 am
I recently looked at my payment records and noticed that instead of applying the $5000 to principal, Chase pulled out the regular payment amount of $1052.39, which included $174.21 of interest, and applied the remainder towards principal. The very next day, February 24th, Chase received my regular payment of $1052.39 (sent in as usual by my wife). My statement shows that they charged $159.13 in interest as part of this February 24th payment.
When the mortgage is initiated, an amortization table is generated that assumes an equal monthly payment (principal + interest) with no additional payments. Credit cards and car loans use average daily balance, mortgages do not (stated another way, interest on a mortgage does not accrue daily as it does on other loans). In calculating interest due, mortgages only consider the balance as of the first day of the monthly cycle. Let's say your payment is due on the 24th. When you made your payment for Jan 24th, the interest portion of that payment was calculated as of the Dec 25th balance regardless of when during the month you made that payment, and regardless of whether you made an additional principal payment in January, since each regular payment is responsible for a full 30 days of interest for the prior month (i.e., billed in arrears).

So, when you made the lump sum payment of $5,000 on Feb 23rd, Chase applied it to the Feb 24th payment (which is not what you wanted, I understand, but what they did). This payment was split into: [$174.21 for the interest from Jan 25th - Feb 24th] + [$878.18 for the principal for Feb 24th] + [$3,949.61 as additional principal]. Then, when the "regular" payment from your wife arrived on Feb 24th, Chase applied that to the Mar 24th payment, split into: [$159.13 for interest from Feb 25th to Mar 24th] + [$893.26 for principal for Mar 24th]. This seems unfair at first, but when Chase calculated the interest for this (paid-early) Mar 24th payment, they applied the extra principal before calculating the interest portion. If you look over the principal and interest splits for Nov, Dec, and Jan (before the extra payment) and for Apr, May, and Jun (after the extra payment), you'll notice your interest portion has been decreasing by maybe $2-3 each month, whereas the interest portion between the Feb and Mar payments went down by $15.
LMK5 wrote:
Fri Aug 18, 2017 9:10 am
I thought that what is being said in this thread is that the bank doesn't give you credit for paying early, they act as if you waited the usual period of time--in my case 30 days--and then just credit that payment for the next month. But what you're saying is that they do credit principal earlier, resulting in more rapid principal reduction and fewer payments over the term. As far as I can tell, both scenarios can't be correct. What am I missing?
It's a subtle distinction, but both statements are true. You are charged a full 30 days interest each month. But you do get credit for paying principal early. The explanation is that they only recalculate the interest once a month, not immediately. Again, assuming payments due on the 24th: the extra payment made on February 23rd didn't lower the February interest (that was already calculated based on the starting balance on January 25th). But it did lower the March interest (which was calculated based on the new starting balance as of Feb 25th). Note the new balance "as of the 25th" was an estimate based on the updated table, since it wasn't the 25th yet when your wife made her payment. That's why the March interest was so much lower than the February interest ($159 vs $174).

They may not have done what you wanted (basically you've been paying 30 days early since Feb), but hopefully I've shown how the interest was calculated.

PVW
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by PVW » Fri Aug 18, 2017 12:39 pm

LMK5 wrote:
Fri Aug 18, 2017 9:10 am
Back on February 23rd I made a $5000 additional principal payment on my mortgage. I used Chase's payment form and checked the box "additional principal." I did not include the regular mortgage payment of $1052.39 in the remittance. I recently looked at my payment records and noticed that instead of applying the $5000 to principal, Chase pulled out the regular payment amount of $1052.39, which included $174.21 of interest, and applied the remainder towards principal. The very next day, February 24th, Chase received my regular payment of $1052.39 (sent in as usual by my wife). My statement shows that they charged $159.13 in interest as part of this February 24th payment.

Maybe I'm ignorant of amortized mortgages, but here are my concerns:
1) If my payment was not overdue and I checked the "Additional Principal" box on the form, wasn't Chase obligated to apply my entire $5000 to principal instead of first taking a regular payment out of it?
2) SInce they had taken the regular payment out on February 23rd (including $172.21 in interest), how could Chase charge $159.13 in interest when they received my regular payment the very next day? Shouldn't my obligation have been only one day's interest on the outstanding balance?

Can someone set me straight on whether Chase's actions were proper, and if so, how amortized mortgages work in this circumstance?
A mortgage payment consist of interest and principal. Interest is calculated monthly and paid in arrears, the principal payment reduces the principal of your mortgage on the payment's due date.

Your $5000 payment included $174 for interest that you owed for the last period, plus $1052 that will reduce your principal on the payment due date and an additional $3774 that immediately reduces your mortgage principal.

The additional (early) payment of $1052 will result in a principal reduction on the next due date, plus payment for interest accrued during the current period. The interest accrued during the current period could take into account your principal reduction payment (depending on how monthly balance is calculated).

Principal reduction payments have the effect of skipping ahead on the amortization schedule. So if you pay an extra 3 months of principal, then just skip up 3 months on the amortization and that will show you the split between principal and interest.

LMK5
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by LMK5 » Fri Aug 18, 2017 1:22 pm

Ok, I think I'm seeing it a little better now. Bottom line is, for the payment they received on February 24th, they applied the same interest as they would have if they'd received that payment on March 24th. Correct?

neilpilot
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by neilpilot » Fri Aug 18, 2017 1:35 pm

LMK5 wrote:
Fri Aug 18, 2017 1:22 pm
Ok, I think I'm seeing it a little better now. Bottom line is, for the payment they received on February 24th, they applied the same interest as they would have if they'd received that payment on March 24th. Correct?
If you say so, since we can only go by your account of what the March payment breakdown was. It's entirely possible that after the $5k was processed, the payment interested for March was adjusted. Only you can determine when the $5000 was credited to your account, and what portion of the Feb, Mar, Apr, May, etc payments were interest. You need to check your bank's mortgage records.

pshonore
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by pshonore » Fri Aug 18, 2017 1:41 pm

Once you make an additional payment of principal, the amortization table goes out the window. Simple to build an amortization table in Excel with outstanding balance, interest, principal and orig payment columns (all calculated except original payment) . In the principal column, add the additional principal paid that month to the original principal amount for that month . You'll see a drop in the "outstanding balance" and that column will go "negative" a few months earlier than planned (depending on the amount and timing). You can do that every time you pay additional principal as well to keep a history. It also comes in handy for projecting interest paid for tax purposes in a given year.

JGoneRiding
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by JGoneRiding » Fri Aug 18, 2017 2:00 pm

pshonore wrote:
Fri Aug 18, 2017 1:41 pm
Once you make an additional payment of principal, the amortization table goes out the window. Simple to build an amortization table in Excel with outstanding balance, interest, principal and orig payment columns (all calculated except original payment) . In the principal column, add the additional principal paid that month to the original principal amount for that month . You'll see a drop in the "outstanding balance" and that column will go "negative" a few months earlier than planned (depending on the amount and timing). You can do that every time you pay additional principal as well to keep a history. It also comes in handy for projecting interest paid for tax purposes in a given year.
no need to build the table, excel has it built in for any currentish edition simply search "loan amortization" it is a very nice table for the template and you can add principle payments wherever you want.

What I meant by "calculated monthly" is it doesn't matter to the bank if you pay it 5 days early (most likely OP mortgage isn't "due" until the 1st) or 14 days late (no late fee until the 15th) the interest would be the same either way. Once you make an extra principal payment then the schedule and interest do change.

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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Gill » Fri Aug 18, 2017 2:16 pm

LMK5 wrote:
Fri Aug 18, 2017 1:22 pm
Ok, I think I'm seeing it a little better now. Bottom line is, for the payment they received on February 24th, they applied the same interest as they would have if they'd received that payment on March 24th. Correct?
Yes, that's correct.
Gill

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jhfenton
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by jhfenton » Fri Aug 18, 2017 3:22 pm

omgbirdman wrote:
Fri Aug 18, 2017 9:38 am
I ran into this with Honda Financial in the manner that they were applying my payments. Any extra I was paying was not immediately reducing principal, and was instead being treated as "paid ahead" meaning I could pay less with my next payment. This resulted in no benefit for me. I found out in order to have it work I had to submit my payment in a different way through their website, explicitly as an additional principal payment.
In my experience with Honda, they would indeed treat overpayments as "paid ahead." But it still resulted in a benefit, because the loan accrued interest daily. It just meant that it eventually got to the point that we *could* have skipped 8 or 9 months. It didn't mean that we had to skip those payments.
JGoneRiding wrote:
Fri Aug 18, 2017 2:00 pm
What I meant by "calculated monthly" is it doesn't matter to the bank if you pay it 5 days early (most likely OP mortgage isn't "due" until the 1st) or 14 days late (no late fee until the 15th) the interest would be the same either way. Once you make an extra principal payment then the schedule and interest do change.
As an aside not relevant to the OP: While that is most common, it is not the case with our refinanced mortgage through Huntington. They called it an installment loan and accrue interest daily. My amortization spreadsheet has to take exact dates into account to match their calculations.

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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Easy Rhino » Fri Aug 18, 2017 6:41 pm

What's the day of the month the loan is due?

Did you mention that the loan was overdue when you made the large payment on Feb 23?

Chase's treatment of payments sounds realistic. There's all kinds of extra restrictions that are customary for mortgage loans using monthly interest.

Especially if the loan was overdue, you may not be allowed the option of making a principal only payment. You might have had to first satisfy the overdue payment before applying to principal (if you were more months overdue it would have gotten even more restrictive).

An as already mentioned, every regular payment collects an amount of interest equal to on month's. And this is probably not based off the literal number of day in the month, but assuming 30 days in a 360 day year (or just 1/12 of your annual rate).

I'm a little surprised they said you don't owe until October. Banks often restrict the ability to pay a mortgage far ahead (but october may still be believable, depending on the due date).

And finally, the Honda Financial example is just plain different because it works on daily interest. you can probably make partial payments, pay ahead, and interest is only calculated from the last time you made a payment (whenever that is).

Incidentally I used to think that monthly interest was archaic and dumb (it kind of is). but I realized the advantage when my Dad wanted help arranging a private loan. We ended up setting the amortization using monthly interest, that way if the borrower paid a few days ahead or late, he didn't have to recalculate anything, the amount of interest was already set on the amortization table.

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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by clown » Sat Aug 19, 2017 1:02 am

To OP - check the fine print your loan agreement. As a retired banker, my experience is that it will typically say that the $5000 payment will be applied as follows -- first, to any interest due as of the date the payment is received, secondly to any principal due as of the date the payment is received, and thirdly as an additional principal reduction.

As an example, if your payment is due on the 1st and the $5000 was received on the 5th, you can see how it would be applied. I would think that the "normal" payment on the 7th in our example would all be applied to principal so that the next payment is due next month -- but your experience was different. Again, read the fine print. I don't mean to be snarky, but if normal payments were made exactly on the due date, not 7 days later, there would have been no problems.

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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Easy Rhino » Sat Aug 19, 2017 11:01 am

I like to think I'm familiar to this stuff, but I bumped into a kind of similar issue a few months ago.

My mortgage is serviced by Wells Fargo. A while back I used my bank's bill pay service to send a check to them (so, no special instructions on how to apply the payment). It arrived a couple days early, so WF treated it as a principal only payment.

But if the check arrived on or after the due date, they treated it as a regular payment.

GottaGetThisGoing
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by GottaGetThisGoing » Sat Aug 19, 2017 11:28 am

Please post your mortgage contract so we can review what the rules and agreements are.

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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by pshonore » Sat Aug 19, 2017 12:12 pm

Easy Rhino wrote:
Sat Aug 19, 2017 11:01 am
I like to think I'm familiar to this stuff, but I bumped into a kind of similar issue a few months ago.

My mortgage is serviced by Wells Fargo. A while back I used my bank's bill pay service to send a check to them (so, no special instructions on how to apply the payment). It arrived a couple days early, so WF treated it as a principal only payment.

But if the check arrived on or after the due date, they treated it as a regular payment.
Wouldn't that result in a missed payment? Your payment due Aug 1 arrived on July 28 and got applied to principal. Don't you still have an Aug payment due?

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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by Easy Rhino » Sat Aug 19, 2017 12:43 pm

It would have resulted in a missed payment yes. I had to contact WF and they reversed and reapplied it as a normal payment

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whodidntante
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Re: Did Chase Apply My "Additional Principal" Payment Legally?

Post by whodidntante » Sat Aug 19, 2017 12:46 pm

In general, it is best to avoid human involvement for such things. No paper, no mail, no talking to anyone. In the past I used my lender's website to do loan pre-payment and what I expected to happen happened.

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