Have I Been Credited For My Mortgage Prepayment?

January 7, 2002, revised November 14, 2002 "I have read your columns about the benefits of paying early but how do I know that my extra payments are being properly credited so that I am getting the full benefit? With so much in the news about lender overcharges, how can anyone trust their lender with prepayments? Should borrowers have periodic independent audits?" (Signed "untrusting"). You�re fairly safe without an audit. I never heard of a case where a servicing agent misappropriated a prepayment. That would be outright larceny committed against the borrower, which is rare in this industry. While servicing agents don�t misappropriate prepayments, mistakes happen and it is a good idea to keep an eye out for them. A few lenders have begun to provide borrowers with access to their payment history on the internet but it will be awhile before this becomes standard practice. Meanwhile, you can use Excel spreadsheets I developed for just this purpose.  One is for FRMs, the other for ARMs. The spreadsheets show your entire amortization schedule, with an empty column for prepayments. When you enter a prepayment in the month you pay it, the entire schedule is recalculated. For example, you take out an FRM for $200,000 at 6.5% for 15 years. You enter these numbers at the top of the spreadsheet and it gives you the complete schedule, including the balance at the end of every month. It shows, for example, that after 12 months, you will have a balance of $191, 854. If you make an extra payment of $1500 in month 5, the schedule recalculates to show a balance in month 12 of $190,296. If the lender has properly credited you with the prepayment, the balance shown for month 12 on the lender�s statement should be identical. If you enter every prepayment in the spreadsheet and save it, monitoring your lender�s bookkeeping will be a breeze. You can monitor amortization on an ARM in much the same way using the ARM spreadsheet.  In this case, you must enter not only the extra payments but also the interest rate.  Beyond that, it works the same way as the FRM spreadsheet. "I have tried to use the extra payments calculator on your web site to see when my loan will pay off, but it is for people with regular habits who pay a certain amount at regular intervals. My extra payments are scattered and for varying amounts. Can you help?" Yes, the Excel spreadsheet I just described will take account of any number of extra payments of any amount in any month, and show you when payoff occurs. You just scroll down the worksheet until you get to a zero balance. Extending the example I gave above, the first extra payment of $1500 in month 5 results in payoff in 177 months. If I add extra payments of, say, $2200 in month 11, $1200 in month 25 and $4500 in month 39, I find that payoff occurs in 167 months. You can access the spreadsheet here. Copyright Jack Guttentag 2002

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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