Question:

How much costs the late payment interest rate?

Answer:

The late payment interest rate for regular mortgages with monthly or annual compounding does not hurt much. However, with a simple interest mortgage (SIM) even 5-6 days can lead to a significant late payment interest charge. The SIM interest is calculated for each day of the loan.

For example, if you have a simple interest mortgage of $150,000 at 6.50%, multiply the loan amount to the interest rate and divide it by 365 and you will get $26.71 simple daily interest. And since there is no grace period with SIMs, your late payment comes very costly to you. Not only will you owe late payment charges, but if you are late 7 days, you will have to pay $187 in interest. Unlike normal mortgage late interest charges, amounting to unsubstantial interest, SIM late payments can lead to negative amortization of the loan.

Also, to avoid incurring late payment charges and additional interest rate on payments, make sure you post them on time so that the lender doesn't get them late.

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