My mortgage payment is 1200.00. I send in the 1200.00 each month along with a additional PRINCIPAL payment of 2000.00 clearly noted on the payment book as intended as a principal payment. But each month the mortgage company takes 1200.00 away from my Principal payment and makes the next months regular payment of 1200 in advance and then applies the other 800.00 as a principal payment. I clearly noted that the whole additional 2000.00 is for a principal payment. They have done this repeatedly when ever my principal payment is over 1200.00. This seems like some type of scam; anyone heard of this practice before. Thanks for any help. When I have sent in a principal payment less the the 1200.00 then they don't do it ; seems because it is not enough to use it as a regular house payment.

marked as duplicate by Brythan, Pete B., NL - Apologize to Monica, JTP - Apologise to Monica mortgage Mar 29 '18 at 9:27

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    Have you asked them why this is happening? – Patrick87 Mar 28 '18 at 0:51
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    Is this written into your mortgage? Mortgage companies hate early payments as it reduces the amount of interest they collect. Some mortgages have prepayment penalties, and some state that, by default, extra payments will be considered as early payments. – Charles E. Grant Mar 28 '18 at 1:15
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    Something does not add up here. The company cannot do this every month. Let's say, in January you send 1200 of regular payment, which gets credited to January, and 2000 of additional payment, of which 1200 gets credited to February, and 800 goes to extra principal. Then when you send your February payment, what happens? Since the regular February payment of 1200 has already been made, 1200 of the new payment should go to March, and the rest would go to extra principal. – void_ptr Mar 28 '18 at 3:47
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    ...Point being, this works exactly the way you want it to work, except you're permanently one month ahead of your payment schedule. – void_ptr Mar 28 '18 at 3:51
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    @void_ptr But it's not quite the way the OP wants it to work... by using $1,200 to pre-pay future month's payments, the OP is paying interest (mostly) as though they hadn't sent the extra payment. The "left-over" $800 will have some effect in reducing the principal, and therefore the interest that would be due when that month becomes due, but if the whole $2,000 were used to reduce the principal, there would be an even bigger saving in interest. Whether the mortgage contract allows the OP to do what they want is a different matter. – TripeHound Mar 28 '18 at 7:26

I do not know anything about US mortgage; however, usually (with the previous rider) mortgages are payed back as EMIs (Equated Monthly Installments). Individual EMIs consist of a) the interest payment b) principal payment clubbed together and does not change for your month-on-month (unless there is an interest rate adjustment, partial payments, increase of tenure and other sundry).

Each month, however, the proportion of interest paid reduces and proportion of capital paid increases i.e. the interest is paid on reducing balance and the EMIs remains constant.

Given the context above, your case seems to be rather curious (but since the bank is doing it, I am sure you must have signed some repayment plan by which they can do it), you are in effect paying 1200 as interest every month and also giving back part of the capital. It is like paying interest for the capital you are retaining + returning, then where is the need to return the capital, logically speaking, you might as well accumulate the capital payments and return it at the end of the tenure. Looks like in the current scheme you are paying way more than you would if it was a simple EMI.

Suggestion would be to first look at the contract you signed with the bank and especially the repayment schedule as mentioned there. It is as you mentioned, go to the bank and ask if you could transfer to some other repayment scheme, understand the long and short of it and take a call.

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