Mortgage Accounting Explained | Foreclosure Defense | Portland, Oregon

What Is in the Mortgage Statement You Receive Monthly?


Mortgage Accounting Explained

If you are an Oregon homeowner concerned with staying current on your mortgage then this series is for you. Today we are going to talk about mortgage accounting I will be giving you three important things to know to help you decipher that mortgage statement you receive every month. 

Your home is your biggest asset and, besides your family and your pet, it is probably the most important thing for you to protect. Your mortgage payment is likely the largest bill you have every month and sometimes the most difficult bill to pay.  If you slip at all in making a payment it gets really hard to determine where you are at. 

#1: The loan documents control the payment NOT the statement.

 

Your monthly mortgage statement may be WRONG and often is WRONG when people fall behind on their payments or the loan service is transferred.  The first thing you must do is locate the Loan Note and Deed of Trust from that large stack of papers you signed.  How much you pay and how that money is applied to your loan is controlled by your loan documents.

There are many variables that affect how much you pay each month and are therefore necessary to establish whether you are current or not. Things like… 

  1.     Do you have a fixed-rate loan or a variable rate loan? 
  2.     If variable, it is tied to a standard index like the Prime Lending Rate or LIBOR? 
  3.     What is the margin which is added to that index to come up with the actual interest rate? 
  4.     Does the rate change monthly, semi-annually, or annually? 
  5.     Do you have a fully amortized loan or is it interest only that resets after five to ten years? 

The answer to each of these questions will determine whether the payment amount demanded on your monthly statement is in fact correct.

When a loan is service transferred – meaning the company to whom you make your payment has changed – this is a hurdle that oftentimes causes the accounting to trip up.  If your loan payee changes, pay very close attention to the mortgage statements before and after that date.

#2: Payments are applied to the oldest month due.

#2: Payments are applied to the oldest month due.

This is important, and some exceptions exist, but for the vast majority of people, a mortgage payment is applied to the oldest month due NOT to the month in which you actually made the payment. 

Here’s an example:

It’s January and you make your payment of $1500.00 on time. You get laid off in February and cannot make the payment. In March you start collecting unemployment and you make a payment, but because of how mortgage accounting works, the payment you make in March is applied to the oldest payment due – in this case that would be February. 

When you get your April mortgage statement it shows you are due for March, which you know isn’t right because you paid March.

Not so fast, the lender would be correct – the payment you made in March was applied to February and you are in fact due for March. To make it even more complicated let’s turn to 3rd thing to know, and boy is it a doozy.

#3: Partial Payments don’t apply.

Ok, bear with me here because we are getting into the deep weeds.  If you pay less than a full mortgage payment, the loan servicer is NOT going to apply your partial payment, instead, they will hold the money until you have paid enough to make a full payment.  Let’s jump back into the scenario we were just discussing…

It’s now April and you cannot afford to make a full payment but you want to do your best so you send in $750.00. Because this is only half a payment, it is NOT applied to your loan.  When you get your May mortgage statement, it will show you are due for March and April and now May.

In May, you are still struggling but can make another $750.00 payment. The loan servicer cashes your check but notice what happens here.  The money you pay in May slides up to combine with the money you paid in April which all slides up to apply to the payment due in March. 

In June you get a mortgage statement that indicates you are due for the April payment and based on this analysis, the loan servicer is right yet again.

There you have it, three important things to know to help decipher mortgage accounting including: 

#1 – the loan documents control, so locate them first.

#2 – payments are applied to the oldest due NOT the month you pay.

#3 – payments are only applied in full, not partial.

Consult a Portland Foreclosure Defense Attorney

If you’re a Portland homeowner having difficulties staying current on your mortgage, then don’t hesitate to consult with our Portland foreclosure defense attorney.  

 

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Whether you're dealing with overwhelming debt, stopping foreclosure or repossession proceedings, or looking for a way to protect your assets, our Portland bankruptcy attorneys are here to help you overcome your financial hurdles!

Please be aware that submission of this no-obligation form does not establish an attorney-client relationship. By filling out the form, you agree to receiving emails from our firm regarding your case evaluation and other helpful resources.