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stretchngrow · Joined: 22 Sep 2008 Posts: 3 2.12 Dollars($)

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!

gmakerley · Posted: Mon Sep 22, 2008 7:47 am Post subject:

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.

stretchngrow · Joined: 22 Sep 2008 Posts: 3 2.12 Dollars($)

Where in my contract should it state how the interest should be calculated? Thanks!

gmakerley · Posted: Mon Sep 22, 2008 8:11 am Post subject:

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.

stretchngrow · Joined: 22 Sep 2008 Posts: 3 2.12 Dollars($)

Thanks, I'll call the lender.

Guest

You would find this in your copy of loan documents you signed in title and in the body of the NOTE.

Guest

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...

savior70 · Posted: Mon May 04, 2009 5:11 am Post subject:

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.

Guest

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.

sunil87020 · Joined: 04 May 2009 Posts: 339 26.96 Dollars($)

Definately all such queries are related to lender.
Lender can better answer such things.

Guest

What are the Benefits of Simple interest?

gmakerley · Posted: Fri Aug 21, 2009 7:15 am Post subject:

that's been touched on up above, leticia.

Guest

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.]

Guest

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

gmakerley · Posted: Tue Jan 12, 2010 8:46 am Post subject:

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.

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Which is better - daily simple interest or normal amortization?