How to check if your mortgage statement is correct
This week the Federal Trade Commission sent out around $28 million in redress checks to more than 86,000 customers of Bear Stearns and EMC Mortgage Corporation. Apparently EMC Mortgage engaged in a flurry of unlawful practices such as misrepresenting mortgage amounts owed, charging unauthorized fees, and engaging in abusive collection practices. This is obviously a case of a dishonest company, but I am sure some customers were defrauded without even realizing it because they trusted the statements they received. This is a guide to how you can double check that the mortgage statement you receive is accurate.
The mortgage statement varies in format from company to company, but the following information are what you should pay attention to:
- Principal amount owed
- Last payment received date
- Interest paid in last payment
- Principal paid in last payment
- Tax and insurance paid in last payment if you impound taxes and insurance
- Interest rate
- Amount owed for current payment
- Late fees owed for current payment
It is usually pretty easy to verify errors in payment dates because you should have records of when your money was taken from your accounts. The due date for the current payment is generally the first day of the next month and the late charge deadline is usually the 15th. If you submitted a payment before the late charge deadline then you should not have a late fee. The tax and insurance impound should also be easy to verify with your tax records and insurance contract. The interest rate should stay the same as the mortgage contract you signed if you have a fixed rate loan. If you have a variable loan, you should watch out for interest rate hikes and contact your lender immediately if your rate is unexpectedly adjusted. I have read some stories where borrowers were crying foul when they were told they had a 5 year fixed period and found that their interest rate hiked up after only 2 years.
It gets a little trickier to verify the amount of principal and interest owed. You would need a spreasheet program and know the terms of your specific loan and your payment history. I think this is where people place complete trust in their mortgage servicer. The easiest case would be that you have a fixed rate mortgage and you have been paying the same amount every month. In that case you can just use a mortgage calculator to calculate your amortization table by plugging in your original loan amount, loan term, and interest rate. However, if your mortgage rate is variable or if you have made additional principal payments then you would need to input it all into a spreadsheet to see where you are now. The basics you should know are the following:
- Monthly interest owed should be the principal amount owed multipled by the yearly interest rate divided by 12. For example, if your current principal amount owed is 300,000 and your yearly rate is 5.75%, then you owe 300000 * 0.0575 /12, which is 1437.50 for the month.
- The principal amount you owe each month is based on the length and terms of your loan. If you have an interest only loan then you pay 0 on principal during the interest only period. If you have a fixed rate loan you can figure out the minimum payments you should make per month with a mortgage calculator or check out this article by Julie.
- Any extra money you put towards your mortgage beyond the minimum monthly payment goes towards the principal. So if you put in extra money and not all of it was credited to the principal amount then something is wrong.
- Your new loan balance each month should be last month's principal balance minus the amount of principal you paid last month.
Here is a simple example on Google Spreadsheets of four months of mortgage payments and how it was calculated.
If this is too much math and you suspect something is wrong with your statement then you should ask someone familiar with accounting to figure out if everything is in order. It would definitely help if you kept a record of all your payments and statements. If there is in fact something wrong you should contact your mortgage servicer first and if you have enough records to back up your math then it is very likely your servicer will fix the error because I do not think any of them want any new lawsuits.