# Who keeps track of interest?



## Dreamfarm (Dec 10, 2011)

I just received the closing paperwork on my land purchase. Since it is owner financed, I make payments to the owner directly. There is a flat amount each month to pay for the next ten years. This takes into account the interest on the loan.

The question I have is this: I want to make extra payments and hopefully pay it off within two years. How do I make sure that the interest is correct. I know on loans from the bank I can just make an extra payment and the interest automatically adjusts.

Is there a program or anything the current owner and I can log into to track the interest so I am not overcharged. Or should I just try to figure it out myself and send him a statement with each check I send him?

Thanks for your input thoughts.


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## where I want to (Oct 28, 2008)

There are on-line amortization tables that you could use. But you need to read your contract very carefully about the effect of pre-payment. I doubt that a small owner carry is going to re-calculate for each month.


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## Dreamfarm (Dec 10, 2011)

it says I can pay 500 each month or more at my discretion. With 7 % interest. nothing about a penalty


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## sunflower-n-ks (Aug 7, 2006)

With no third party, like an abstract company, using an escrow account, I hope you are paying with a check and legally documenting each payment and what it is for.


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## Bret (Oct 3, 2003)

The lender should always get what's due.

If you have a payment schedule printed out from an amortiization table, it should show how much is due each month for principal and interest. As the months click off, the payments will stay the same, but the amount applied to interest and principal will change.

When you make additional principal payments, you are lobbing off the from the backend or shortening the number of months to go.

Unless, you have negotiated something different, in your contract.


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## Dreamfarm (Dec 10, 2011)

Thanks for your advice. I appreciate it. I will read the contract carefully before I sign.


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## willow_girl (Dec 7, 2002)

I hold a land contract but the payments are collected by the local bank. The buyer paid to set up the account, and he pays a monthly fee (I think it's around $10). In return, the bank keeps track of things like this, and sends us each an annual statement for tax purposes. 

Something you may wish to consider!


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## Evons hubby (Oct 3, 2005)

Monthly amortization can be calculated quite easily with any number of programs available on the net. However.... when you make any extra payments... you have to refigure things and keep track of it every time. This is pretty easy too but you must remember to do it with every payment. Interest accumulates daily, so you multiply the principle due by the interest rate and divide by 360 (most folks use simple interest) then multiply by the number of days since the last payment. That will give you the amount of interest due at any given point. Subtract the interest from the amount of your payment and that gives you the amount being applied toward the principle. Subtract that amount from the principle and you get your new principle due for next month. Example:

Purchase price = $24,500

first payment ($400) due in 30 days

7 percent simple interest

24,500 x .07 = 1715 / 360 = $4.76 (interest per day) x 30 = $142.92 interest due. 

400 - 142.92 = 257.08 Principle

24,500 - 257.08 = 24,242.92 new balance. 

next month you start with 24,242.92 and repeat.


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## Gianni (Dec 9, 2009)

An old family saying is that those that understand interest collect it, those that don't pay it.


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## oregon woodsmok (Dec 19, 2010)

Make your payments through an escrow company. It's a couple of dollars a month and they keep track of everything.

None of this forgetting to mark a payment down by the seller, or claiming you owe more.

No problem with keeping track of extra payment.


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## Zilli (Apr 1, 2012)

willow_girl said:


> I hold a land contract but the payments are collected by the local bank. The buyer paid to set up the account, and he pays a monthly fee (I think it's around $10). In return, the bank keeps track of things like this, and sends us each an annual statement for tax purposes.
> 
> Something you may wish to consider!


This is what I do and I wouldn't do it any other way.

I set this up with a local bank before my first payment was even due.

I send the payment to the bank and they make a direct deposit to the seller's bank account (or they could send him a check, it was his choice). They compute the interest, they record the payment (also very important), and at the end of the year, we each get a statement.

It cost $100.00 to set it up (that amount can be split between buyer and seller, but I figured since I was the one with the most to lose if things didn't go well, I paid the full amount). Since it is my bank who does the collection, they weren't charging me a monthly fee but when they doubled the seller's monthly fee, from $12.00 to $25.00 a month, he said he wasn't going to do it that way anymore and wanted me to make the payment directly to his bank account, with no oversight by a third party. So, I offered to pay half his monthly fee. Again, I figure I have the most to lose if a payment "accidentally" gets lost, or if interest isn't computed correctly, so it is worth the $12.50 a month to me; in fact, I would be willing to pay the whole $25.00, if it came down to it (hopefully that won't happen).

But, anyway, this is something you might want to look into. While I go through a bank, I understand that some (not all) escrow companies do it as well.


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## Zilli (Apr 1, 2012)

where I want to said:


> There are on-line amortization tables that you could use. But you need to read your contract very carefully about the effect of pre-payment. I doubt that a small owner carry is going to re-calculate for each month.


When I was negotiating my contract, I made sure that it was written specifically into the contract that there would be no "pre-payment penalty."

Also something I highly recommend.


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## willow_girl (Dec 7, 2002)

Another thing to look out for is a clause that allows the contract holder to borrow against the property. 

Personally, I wouldn't sign a contract that allowed this. At least not as a buyer! As a seller, the boilerplate contract I used had that clause in it. I expected the buyer to contest it, and would have been willing to strike it, but he didn't object, so it's still in there. I can take out a mortgage on the property up to the amount of my interest ... so if he still owes $100,000, I could borrow up to $100,000 using the property as collateral. 

It's easy to see why this could be a problem ... if I did so, and defaulted, it would put the buyer's interest in the property in jeopardy. At the very least, it would cloud the title. Of course, I have no intention of doing so.

Read your contract carefully, and/or have a lawyer look it over! Money well spent, IMO.


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