We have a commercial customer who has a loan with an escrow account for tax and insurance purposes. Apparently the escrow account balance is large and the customer would like to apply the interest earned on the escrow account towards the principal balance on his loan. Any thoughts, comments or suggestion? Thanks in advance.

On a commercial loan I would make sure I looked at the Note and/or security agreement before doing anything. On some commercial deals, the borrower either can't prepay principal at all or it has to be paid in a certain amount (eg. you may prepay principal at any time, however, any such prepayment must be in an amount at least equal to X").

I would also check and make sure allowing this wouldn't mess up the amortization schedule for the loan. A long shot, I admit.