Calculating refinanced mortgage

Q: I recently refinanced the mortgage on our home. At closing, I noticed that when they calculated money I owed from the date of closing to end of that month, they calculated the daily percentage rate based on 360 days, not 365. This made the daily amount slightly higher. When I questioned it, I was told this was how the computer software calculates it. Total difference for the few days between closing and the end of the month was very small, less than $2, so I just moved on with the closing.

But then about two weeks later I received a check from the mortgage company for the difference — with a note that said “thank you for being a very valuable customer.”

I checked with some friends who also have refinanced. All used different lending institutions, but their daily interest was also calculated the same way, 360 days instead of 365. I’m thinking this must be an industry standard. That being the case, all of these small amounts would certainly add up to millions and millions of dollars annually nationwide.

As a side note — when calculating the daily cost of the mortgage for the life of the loan, they do base it on 365 days. — B.

A: The custom you ran into made calculations easier back in the days when these things were done with pencil and paper. With a 360-day year, one can assume each of the 12 months has the same amount of interest. For that matter, sometimes a 364-day base is used (52 weeks times seven days) so that weekly interest is uniform all year. You have to wonder: what happened in leap years?

It’s nice to hear that someone reported your objection and the lender refunded that small difference.

If interest on your whole loan were based on 360-day years, it might have totaled an extra $2,000 or so over the next 30 years.

Carpet or hardwood?

Q: I own a townhome built in 1972. Many buyers around here are making improvements. Given my 77-plus years, I hope to live here for (hopefully) another 15 to 20 years.

I need to replace the carpet on the stairs and upstairs hall. That will definitely be carpet. The main level of the house is presently carpeted, but needs updating with either carpet or hardwoods. Even though hardwood is in, I actually prefer the carpet for its warmth and uniform appearance. My question is: Which is better for resale (should I have to sell sooner than 15 years), and which is the least expensive? Which makes for a less “chopped up” look? — C.H.

A: First off, do you know if there’s hardwood under your living room carpet? If there isn’t, you’d be installing wood floors from scratch, and that’s definitely more expensive than re-carpeting. On the other hand, carpet will probably need replacing again if you’re there for another 20 years.

As you realize, many buyers today prefer wood floors. But if you enjoy carpeting, you’ve earned the right, by now, to keep your home the way you like it. Don’t worry too much about resale.

Q: About the reader whose bank deducted mortgage payments but wasn’t forwarding them: When I had my mortgage, it was sold to other companies three times. Perhaps she used the “bill pay” service where they send a check to whoever you request. The bank mailed it off — and the old lender is never going to be fast about sending that check back.

I find it hard to believe a mortgage holder faithfully making payments for some good while would suddenly be threatened with foreclosure after two missed payments. Just a thought. — M.B.

A: The reader hadn’t mentioned the mortgage being sold to another lender, but you’re right — that could have been the source of her problem.

Many mortgage contracts, by the way, do allow the start of foreclosure proceedings after just a couple of missed payments. That “threat” probably came from a computer program.

Q: I want to help my daughter get a house or a condo, but her credit rating is poor. I believe I could buy a house in my name as well as in her name. I would have her pay me what she now pays for apartment rent. As primary owner, I would be able to claim interest and real estates taxes, correct? What other problems am I missing? — R.V.

A: You’d be a co-owner, not a primary owner. Whichever of the owners actually pays the bills is entitled to claim the tax deductions. I’m not sure about the tax situation with the money she’d pay you. Perhaps if it’s less than $14,000 a year, it could be considered simply a tax-free gift.

You may want to consider what you’ll do if she has trouble paying her share. Is this a setup for family problems?

— Edith Lank will respond personally to any question sent to www.askedith.com, to edithlank@aol.com, or to 240 Hemingway Drive, Rochester N.Y. 14620