A few days ago I had posted this question in the Lending Compliance Forum, but perhaps this Forum is a more appropriate place...in any case, I apologize for the duplication, and I would appreciate your feedback...
Scenario: A mortgage loan is paid ahead by 6 months; the payment structure is a typical mortgage amortization; that is, interest is based on a 30 day month regardless of number of days in the month; interest is the same whether paid on the 1st or any other day of the month; that is, there is no "date of payment to date of payment" calculation. Also, to simplify matters, there is no escrow account. In addition to regular payments, the borrower paid extra principal each month, and those curtailments were applied correctly. The next interest amount charged was always calculated on the balance after the curtailment.
Event: Lender receives via wire transfer from another bank a payoff effective the 28th of November. Due date on loan prior to pay off was 5/1/2012. In this case, the payoff is going to be less than the principal balance because there is interest which has been prepaid [side note...lender is correctly showing as such, so that interest past the January 2012 payment is to be counted for 2012, not 2011...a moot point, though, since loan is paying off.]
Calculation: By my calculation, the borrower's interest refunds should consist of the following...interest as collected for the payment due dates, counting backward, of May 2012-January 2012...which with interest is arrears is for the time period April 2012-December 2011] PLUS 3/30 of the interest as collected from the December 2011 payment [which was for November 2011 interest] 3 days is for November 28-November 30. [We are assuming that borrower charges "day in" and not "day out" and that funds were received on November 28 prior to cut over to next posting date.]
Question: Is my calculation correct? Lender is trying to come up with a generic "per diem" and as a result comes up over $50 short on the interest due back to borrower. My contention is that, because this is likely an atypical case, the lender's software is just not handling this correctly. To try to rebate interest on the most recent principal balance is not correct since the borrower's past payments have been on higher balances.
Thank you for your time in looking at this matter.
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