We got a loan to purchase this Maine "dwelling". The rates are okay. The loan behaves like a mortgage. More interest during the earn days of your loan as it is tied to the outstanding balance. I started looking at their numbers after Marjie voice interest in accelerating the payoff to stop throwing so much interest their way.
I was able to download a payment history and created a spreadsheet to generate the same numbers. The process I used was to divide the annual rate by the number of days in a year to arrive at a daily rate, then take the daily rate and multiply that by the number of days in a month to arrive at the monthly rate for that month, I then multiply the monthly rate by the principal to get the monthly interest amount, that gets subtracted from the monthly payment and finally the new principal balance is calculated.
The numbers I generated matched until I got to 2024. Then my numbers were off. I was a bit lower. What I determined was that they do not use 366 days in a leap year. They use 365. When I changed my process to use a constant of 365. The numbers lined up exactly.
In doing some research on what's proper I found a paper from BOA and it describes the process and they handle leap years as I initially did. In look at a few federal sites that oversee consumer loans, there is no guidance or regulations. As long as the annual rate is reasonable, and the lenders calculate loan interest in a consistent fashion its allowed.
We'll pay this loan off by next summer.
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