Truth in Lending - Refund of Finance Charge

[mormegil27]

This is an old thread, but I wanted to double check something if any of you are still able to reply. The statement:

"will not be entitled to a refund of part of the finance charge".

should mean that I don't get any interest back that I already paid. This makes sense to me, since the interest should accrue monthly (if not daily) and then each payment I make pays interest first, then principal.

However, the statement could also be construed to mean "you must continue to pay your finance charge regardless of whether you pay off early", since "part of the finance charge" is future interest the bank isn't making because I paid off early. So can it be construed to mean I still owe the bank future payments of finance charge they otherwise would have gotten?

Thanks.

[thelopez2]

Originally Posted by mormegil27

This is an old thread, but I wanted to double check something if any of you are still able to reply. The statement:

"will not be entitled to a refund of part of the finance charge".

should mean that I don't get any interest back that I already paid. This makes sense to me, since the interest should accrue monthly (if not daily) and then each payment I make pays interest first, then principal.

However, the statement could also be construed to mean "you must continue to pay your finance charge regardless of whether you pay off early", since "part of the finance charge" is future interest the bank isn't making because I paid off early. So can it be construed to mean I still owe the bank future payments of finance charge they otherwise would have gotten?

Thanks.

Only if you don't understand how mortgage interest works can you construed it in a different manner. The original poster did not understand how interest occurs. The finance change is not future interest but the interest based on a a schedule of minimum payments. I'm speaking of typical residential mortgages.
The interest is just on the remaining balance. You shouldn't owe a bank future interest payments. I say "typical" and "shouldn't" because there are always exception where someone can do an atypical loan non-typical loan where they are borrowing the interest upfront, but if that was the case, the loan amount should be much higher than the purchase price, like double.

[Dune001]

Betatester: On what planet does 5% of $100k = $2,728? It = $5,000!! Very simple math. I'm no financial analyst but I do have my MBA. my 5th grader could do that math! Even after ameritization that number is super close to $5k in interest, year one.
On (most)mortgages
Your payments are FIXed so that you can plan your expenses. So it only makes sense that you would, over the course of, for example a year, pay that 5% annual rate....and with your first payment, your $100k loan owed goes down a small amount, and then you are paying the 5% on this slightly lesser amount the next month. So each month you pay slightly smaller interest payments( but always at 5% of the remaining principle) and slightly higher principle payments. If you lent someone even $10k for one year at 5% interest (that would be a smoking Deal for hard money!) I guarentee you would want your $500 interest for the year. Unless you arranged for them to make monthly payments to you. In that case you may let some of the payment go toward principle and some toward interest, in which case you would be nice by "amortizing it" and get a little less than $500 in interest. In the end, how would you suggest it be structured "better" for the guy borrowing money from you? No prepayment penalty, done. no more interest charges once paid. Done. What do you think you would owe this guy back if he paid his loan off at 6 months and paid $250 in interest?