Pay Extra, Not Early, To Trim Mortgage Interest

Q: I've been paying my mortgage for more than 10 years, and I was always under the impression that if you paid your mortgage a few days early, your payment would be applied and your principal and interest would be reduced and adjusted. In other words, you'd get credit for paying early. Our mortgage was just sold to another company, and they said this wasn't true. Are they right?

A: They are. Charles Richmond, executive vice president of Washington Federal Savings, explains that mortgage payments are always based on interest in arrears. "That's the key: You're paying interest that's technically already due. By paying early you're just giving the mortgage holder use of the money sooner than they expect to receive it." If you still think you're right, read your mortgage documents. They'll spell out whether you're due early payment credit; more likely they'll state only that if you pay late you'll be charged a fee, Richmond says.

He wonders if you've confused early payment with prepayment of principal. To prepay, you pay your regular principal and interest bill on time and include an extra amount to be applied toward principal only. "If someone has an extra $10-$20 a month to add to their mortgage payment, it's a good thing to do," Richmond says, because it means you'll pay less interest over time. One last thing: If you have been paying your mortgage early, you may not have gotten credit, but you have earned an excellent payment history, which potential creditors love.

Q: I bought my home five months ago, assuming that the gravel driveway leading to my backyard garage is my property because it leads nowhere else. A neighbor says it's actually an alley owned by the city, which needed an easement years ago for a power pole. This isn't recorded on my title, and I feel duped by the previous owner, the real estate agent and the title company. Do I have any recourse?

A: "Before you can take any action, you need to know with more certainty what you're dealing with," says Seattle attorney Robert Sargeant, with Preg O'Donnell Sargeant & Gillett. He advises you to hire a professional land surveyor who'll determine your exact property boundaries and what interests, if any, conflict with yours. Have the surveyor find "all lines of possession and occupation"; this will show you anything like a fence or power pole that may infringe on your property.

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