Bankers/accountant types....question on loan interest

[mjeff87]

I've got a theory in my head that a local institution I deal with is doing something not Kosher.  Let's say you have a loan, in my case a mortgage.  The payment is due on the 1st of every month.  After the 15th, it is considered "late".  You are old school, and like to make your payments in person every month (to make sure your payment is actually applied, and applied to the correct account.....but that's a whole different discussion).  Problem is your monthly bill/statement doesn't show up in your mailbox until AFTER the 1st of the month (not every month, but it's been late 4 out of the last 6 months).  My question is, does your interest increase, ever so slightly but it increases, when you make that payment on the 2nd, or 3rd?

 

We always pay it on the 1st, regardless of having a proper bill or not, that's not a question.  But I'm thinking if they can bilk an extra couple pennies of interest from 1000's of other customers who wait a day or two (or more) to pay, those little fractions of a cent of interest can add up pretty quickly, and they can make a TON of extra income from interest.  Think of the movie Office Space.....noone notices the fractions of a cent until they become noticeable.

[87MJTIM]

The banks post your payment when it is received (or when they get around to it).  A delay in posting can/will occur when the payment is sent to a lock box or third party processor.

 

(Credit card processors were sued several years ago for posting payments after the due dates, even though the payments were received at a lock box timely.  Payments weren't posted until they were picked up by accounting.  The CC companies were making MILLIONS of dollars by charging late fees.)

 

Banks grant a longer late period (by law?) of up to 15 days.

 

So, to answer your question, yes, you will show/report more interest since the payment gets posted after the 1st.  That is because the interest is calculated on the number of days since the last payment was posted: 30 vs. 31 days.

 

$Mortgage balance x Int Rate% / (#days/365)

 

By varying the # days, either more or fewer, will alter the interest calculation.

 

If you do not want to pay more interest, then possibly set up automatic payments.  You set the day the bank withdraws the $$$.  Some lenders give discounts to have automatic payments.

[mjeff87]

That's what I was thinking, the extra day or 2 (or more) of interest they can tack on to the balance of the note.  Couple pennies here and there, but extrapolate that across hundreds of accounts, per month, for a 15 or 30 year note and you can be talking about some serious money being "made".  And not noticeable at all.  I've got a sneaking suspicion that they are sending out the bills/statements intentionally late, but not late enough to make anyone's account actually "late", or >15 days past the due date.  Sneaky, yes?  Illegal.......I dunno.

 

I didn't want to bring up auto payments.  Every other bill my wife and I have are either on auto pay or are paid electronically, except our mortgage.  Long, 2-part story behind it, but 1) we've been shafted by other lenders who applied our payments wrong, or not at all, or to someone else's account before (Bank of America, I'm looking right at YOU) and I want to make damn sure our payment posts correctly every. single. time.  And 2) our payment comes out of 2 different account sources (neither of which are with this institution).  I've already asked them if they can do what we need them to do, and they said they can't take an EFT from more than one external account source.  Sure, I could move money between accounts each month to put enough in one of them to do one EFT, but I don't want to.

 

Thanks for the reply.

[mjeff87]

^^^all that said, and I still have to mention......this institution did actually even manage to screw up our payment a couple months ago.  The one I made through the drive thru window (cause, COVID, and noone's lobby is open for in-person banking).  The teller actually applied it to the credit card account (which has a $0 balance......) I have with them instead of the mortgage account.  The account numbers are similar, but different, and she chose the wrong one.  I got the receipt and never even thought to check the account number to see if it was right (everything else was, including the name).  You'd think it would be easy for them to fix once I realized what they did (wrong), but it almost took an act of congress for them to get everything straight.  Top it all off, the month after that we got a charge for a late payment for that month, plus interest and penalties.  I went ballistic on them.

[89 MJ]

8 minutes ago, mjeff87 said:

I went ballistic on them.

As you should have

[derf]

Make a point to pay it on the 25th or so, days before it's due and you don't have to worry about it.  

[Manche757]

1 hour ago, mjeff87 said:

 Top it all off, the month after that we got a charge for a late payment for that month, plus interest and penalties. 

Check your credit.  It likely was reported as a late payment and they likely would not bother to correct the reporting.

[mjeff87]

36 minutes ago, derf said:

Make a point to pay it on the 25th or so, days before it's due and you don't have to worry about it.  

 

We do pay it early sometimes, especially when we know we're not going to be in town on the 1st of the month.  But not every month.  The paper bill is usually the trigger, but like I said lately it's been hit or miss on it actually arriving on time or not.  It might actually be in my mailbox today, but I left for work at 0630.  My mail usually gets delivered between 4-5PM on weekdays (and before noon on Saturdays when the substitute/alternate carrier delivers.....but that again is a whole 'nother story).

[87MJTIM]

I will mail payments 3 or 4 days before the schedule due date (when I mail payments).  If the due date is a weekend or a Monday, I will mail it a day sooner.

 

I also go on-line to make payments, even recurring payments, and schedule when the payment is to be made.  I usually select the day before the due date.  That is because vendors may cut off the "receipt time" before they post receipts sent in - see my comment about credit cards above.

[mjeff87]

Nope...no paper bill in the mailbox today.  Its now 2 days "late".  Hmmm....

[87MJTIM]

Must be COVID.  Everyone else blames COVID for everything.

[mjeff87]

Yep.  But somehow, amazingly, I've had to do my job 100% without any excuse or error since this whole thing started.

[mjeff87]

Well...what do ya know.  The paper bill showed up in my mail today, only 4 days after the due date.  I'm gonna call on Monday and raise some hell.  I know from experience that calling over the weekend is pointless.

[Manche757]

Pay online whenever you want. You don't need to wait for a bill.