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(Jean):"... the "extra" payment shouldn't have interest, it should go totally to principle!! The interest in on the balance fact an extra payment would lower the interest payable for the next month."
No, I think there would be both interest and principal in that last payment.

Normal situation: borrower/taxpayer has paid 12 payments, each on the 1st-2nd of the month. (Couldn't get to the bank on New Year's Day). The last payment was made on Dec. 1st.

If he now makes the payment due the following Jan. 1st, on Dec 30th, let's say, he is making a regularly scheduled payment of interest and principal, and that will be a 13th payment. If the lender carefully accounts for the interest and principal due on each payment, the 13th payment will be almost the full amount of interest due on Jan. 1st.

And the 1098 the borrower receives SHOULD reflect the interest included in all 13 payments.

And you're right. It will lower the amount of interest included in future payments.

But you can't do it two years in a row.


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