🔺 r/personalfinanceuSeniorTomatos·18 days ago
Prepaying interest on mortgage instead of automatically applying extra payments to principal
Insane! The lender is taking the extra money and putting it into a "paid-ahead status". By doing this they are effectively taking an interest-free loan from me, the person who is supposed to be on the receiving end of the loan, while continuing to charge me interest on that exact same money that I have just given them. So crazy thing number one: they now physically hold my extra cash. They can invest it/use it. They pay me 0% interest for holding this money. Even crazier thing number two: they then continue to charge me interest on the money I have given them. Because they haven't subtracted that cash from my current principal balance, my official debt remains just as high. Every day, they calculate my daily interest charge based on that artificially high principal balance. Apparently legal, and completely absurd! Fortunately we caught it, called them, and asked them to apply it to the principal and not "future interest" but like damn. People are straight up getting scammed. submitted by /u/SeniorTomatos to r/personalfinance [link] [comments]