Accrued Interest
Accrued interest is not a good real estate term and in most cases
means a payment that has been made is below the agreed payment. This
means the interest left over after the premium was paid accumulates
on the loan. This is known as a negative amortization or deferred
interest, because it is interest that has been earned and has not
been paid.
For the buyer of the property, while they have paid a payment it
keeps them from sliding behind, but at the same time it also places
this earned interest back on to the loan amount at the end of the
loan. This also means that it can add more to the loan amount when
calculating the full loan amount.
The interest amount on the loan grows from monthly payment to
monthly payment, which is why when making extra payments on the loan
amount making them on the principal alone is not enough, because of
the accrued interest. This extra paid amount would first be applied
to the mounted up interest, with any left over going toward the
principal.
Mortgage loans are calculated with daily accrued interest, and are
done using a mathematical formula that is 30 days per month with 360
days per year. This accounts for the short month of February and the
longer months having 31 days, where no interest is added. This
formula also ignores leap years and the system of calculation stays
the same. This way of calculating mortgages affects the payment that
is made in full when it is paid late, such as the payment that is
made 14 days late will have accrued approximately an extra $35.00
dollars in interest.