Question:

How are home loan late fees managed on a simple interest mortgage (SIM)?

Answer:

Home loan late fees may be significantly higher with a simple interest mortgage where interest accrues daily, compared to standard mortgages. While with a standard loan borrowers enjoy a grace period of 10 or 15 days, mortgages with daily compounding interest can be very expensive to pay after the due date.

For example, if with a standard fixed rate mortgage you could afford to make a 10-day late payment at no additional cost, with a SIM, you will owe additional interest money on every day you are late. If your daily accrued interest is $20.36 and you were late 10 days, you will owe additional $203.60 to your lender. If you are over 15 days late, the lender may require even more home loan late fees regardless the fact you already owe interest on every day you may be late.

Home loan late fees with simple interest mortgages are quite difficult to handle, especially if you tend to procrastinate with your mortgage payment. However, if you are making your mortgage payment 10 days before the due date, not only you are avoiding loan late fees, but you are adding some 10-day interest towards the principal of your loan.

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