I have a 30 year fixed rate interest and principal payment mortgage, what does,"Unpaid interest accrues to pri

Question

I have a 30 year fixed rate interest and principal payment mortgage, what does,"Unpaid interest accrues to principal" and it says YES. What does that mean? Like if I have 10 years left to pay the balance off but I want to pay it in full I have to pay the principal plus the interest of the 10 years left? I'm confused, Please help me out.

Answer 1

No, it does not mean you have to pay ten years' of interest if you pay off the balance.

What it means is that the day after you make your payment, interest begins accruing on your loan.  So, if your remaining balance was exactly $100,000 as of the date of your most recent payment, your new balance a day later would be $100,000 plus one days' interest.

If you want a total payoff balance, you would need to ask the financial institution for a payoff figure.  They usually quote the payoff for ten days into the future because most of the time, home owners "pay off" their mortgages with another mortgage, and this allows time for processing.

But any loan payoff will involve only the principal balance plus the interest accrued since the last payment, unless you either did not make a full payment or you have a mortgage loan with a pre-payment penalty.  If you do have a pre-payment penalty, this will be specified as a dollar amount or a percentage amount.  Usually, subprime or Alt-A loans carry pre-payment penalties.  Traditionalmortgages for prime borrowers (those with good credit), FHA mortgages and VA mortgages don't have pre-payment penalties.

Answer 2

This means that if you miss a payment, the amount that was due gets added to the principal.  If you want to pay the loan off early, you need pay only the interest that had accrued, but was not yet paid, running up to the payoff date.  To proceed, request a "demand letter" from your lender; this will specify the exact amount required on any particular date to pay off the loan in full.