The Fair Credit Reporting Act requires loan servicers to credit full mortgage payments to the borrower’s account on the day they’re received.  Prepayments are allowed at any time without penalty, but there are no rules governing partial payments.  If you send in only a portion of your monthly payment, the payment will not be applied to your account and may be returned.

Since a partial payment cannot be applied to your account upon receipt, many servicers won’t accept partial payments at all.  Some servicers will hold onto them in special accounts called “suspense accounts,” or “unapplied funds accounts” rather than crediting them immediately to the borrower’s loan, but this also gets tricky when there are late fees applied and numerous missed payments.  The collection and accounting of partial payments can create delays and errors so to make things easy for record-keeping and reporting, most lenders simply require a full payment to be made.

Partial payments also impact the popular bi-weekly payment strategy.  In this strategy, borrowers make half a mortgage payment every two weeks resulting in 26 half-payments, or 13 full payments, over the calendar year.  The process results in one extra principal and interest payment being prepaid each year, thus paying off the mortgage at an accelerated rate and providing additional interest savings over the term of the loan.

Technically, bi-weekly payments are considered partial payments, so lenders that do allow for bi-weekly payment schedules always require the borrower to prepay their mortgage account one month ahead.  With a one-month surplus in the account, a half-payment received every two weeks is considered a prepayment rather than a partial payment and can be applied to the account.

For more information on bi-weekly payments, please check out our blog post on the topic here.

Author: Chris DeMatteis, NMLS ID 214872