Can a mortgage company charge interest on interest?
State laws set limits on how interest can or cannot be calculated and how large an interest rate can be. In most cases, a conventional mortgage loan won't result in interest on interest; however, some loans include provisions that allow for payments that are not sufficient to cover monthly interest on the principal balance. In those cases, the unpaid interest portion becomes capitalized, or added to the principal balance, and interest starts being accrued on the larger balance. Whether this "negative amortization," as it is called, is a permitted practice in your state will be a state law question.
BankingQuestions.com is a free service made possible by the generous support of our advertisers. Advertisers are not responsible for site content. Please help us keep BankingQuestions.com FREE by supporting our advertisers. When you see an ad for a product or service you may have an interest in, click through to learn more.
Accounts
Article
Q&A
Podcast
Video
Blog
Discussions
PDF
Powerpoint
State laws set limits on how interest can or cannot be calculated and how large an interest rate can be. In most cases, a conventional mortgage 