Mortgage Payments Below Interest

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The CFPB describes mortgage payment options that can leave interest unpaid and added to principal. A permitted minimum payment need not reduce debt.

Fictional two-month example: $100,000 opening principal, 0.5% monthly interest and $400 month-end payments. Assume the contract permits these payments and adds unpaid interest monthly. No fees, escrow, rate changes or other adjustments.

Month one: $100,000 × 0.005 = $500 interest. Paying $400 leaves $100 added to principal: $100,100.

Month two: $100,100 × 0.005 = $500.50 interest. Another $400 payment leaves principal at $100,200.50.

Alternatively, paying $500 interest each month keeps principal at $100,000. The smaller payments retain $200 cash across both months but leave $200.50 more debt, not $200 saved.

The CFPB warns that later principal-and-interest payments can rise. Ask your servicer when recalculation occurs and what payment covers interest and reduces principal. These figures are not permission to underpay another contract.