Charged for Paying Extra Towards Mortgage

 (I am using “He” here for simplicity. Apologies if the friend is female or plural)

Unless he is making very large payments toward his principal (such as 20% or so) and the loan has a prepayment penalty in place, they should not be charged for extra money. If he were being penalized for prepayment, it would likely be much more than $23.

I wonder, using just the information in your question, if a payment (perhaps sent a few weeks early, or for a different amount than before?) was accidentally misapplied by the servicer? If one payment was applied entirely as a principal reduction (and did not “count” as their monthly payment, but rather as an extra one for the same month)?

If the servicer applied one payment as an “extra”, they may be assuming that each subsequent payment is actually late – and charging a late fee (which could easily be $22 or $23). Here is what I mean:

Let’s assume that your friend’s payment is supposed to be $1000 a month, but he or she is sending $1200. Let’s also assume that he is a good and responsible borrower, and sends his payment out a little early to be certain that it arrives:

On Feb 20th, he sends 1200 for his 3/1 payment, and it gets counted correctly (1000 +200 extra principal)

On March 19th, he sends 1200 for his 4/1 payment, and it gets counted correctly (1000 +200 extra)

On April 10th, he mails his 1500 for 5/1, because he is going away in April and he doesn’t want to forget. He got his tax return, so he sent a little extra. But the servicer hasn’t even mailed statements for May yet on 4/10, so they are not yet looking for a 5/1 payment … so they get his check and assume that the whole check is just an extra principal payment. They take 1500 off his principal, but they dont mark May 1 as paid or pay the interest due.

On May 17th, he sends out his 1200 as normal for 6/1, thinking everything is ok. But the lender is still looking for the May 1 payment, so they count his payment for May and charge him a late fee because they received it after the 15th of the month.

Because the payment never went 30 days or more late, he might not have been contacted by the lender, and the lender may not have any red flags as to anything being seriously wrong … sometimes people use the grace period and are a few days after the 15th, it is what it is.

SO on June 19th, he sends out 1200 for what he thinks is 7/1 payment … the lender is still looking for JUNE 1, since they applied the last one to May … they credit the payment as 1000 plus 200 extra principal, but they charge the late fee again … because in their eyes, the payment is received after the 15th of the month …

He could keep going like this for a while – operating almost but not quite a month behind, and getting hit with a late fee each month. It would look as though he was getting charged for the extra principal.

In order to be certain, he needs to call to request a detailed payment historyon his account. Generally, this will be free, can be faxed or mailed, and will show how each payment was posted and to what month the interest was applied. Once he has this in hand, he needs to call the servicer to go over any discrepancies and to have the post corrected. If the lender should have reasonably applied a payment as his monthly interest and they did not, they may be able to back credit all the fees … but he needs to do this sooner rather than later so that it will be trackable. He may also benefit from writing the exact intention in the memo of his check (if he mails checks). “Payment for August 1 plus $200 extra for principal reduction”. This eliminates any confusion.

If the above does not sound like what is occuring, still have him get a detailed payment history and then call his servicer to find out exactly what the “fee” is for. This should be marked in their system, and they should be able to identify it right away. My guess is that it is NOT a penalty for principal reduction.