Question:

How do I manage accounting for accrued interest on a mortgage?

Answer:

Accrued interest is the interest accumulated over the principal. With home loans accrued interest is often termed negative amortization.

If the buyer has opted for a Neg Am ARM, he is making minimum payments not covering the accrued interest and ends up owing more than initially borrowed. In any case the borrower has to keep an eye on this kind of loan, accounting for accrued interest, since the loan will take longer to amortize, not to mention that the suspiciously low monthly payments will skyrocket as soon as the fixed period is over and there might be severe cash penalties for refinancing into another loan.

Have in mind that some of those loans can be deceivingly advertised. If you have gotten into a 1% ARM lured by the possibility of reducing monthly payments for several years you probably did not know each month you might be adding some $400 to your principal, did you? So, make sure you are accounting for the accrued interest on your mortgage before you fall into the trap.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
Was this Mortgage QnA helpful?
Not at all
  • Currently 3/5 Stars
  • 1
  • 2
  • 3
  • 4
  • 5
Definitely
Add to this Answer

Mortgage QnA is not a common forum. We have special rules:

  • Post no questions here. To ask a question, click the Ask a Question link
  • We will not publish answers that include any form of advertising
  • Add your answer only if it will contrubute to the quality of this Mortgage QnA and help future readers
If you have trouble reading the code, click on the code itself to generate a new random code. Verification Code Above:
Bookmark and share this QnA: