Help! "Prepayment Privilege" clause

[disneycrazed139]

First, let me preface this with my thanks to those on these boards. I would no nothing about this program and be completely uninformed without everyone's help--so thank you very much for all your answers. I know I have been very vocal lately.

Okay, I am actually up now reading this loan note from Disney financing verbatim! Somebody please help! I am readng the prepayment privilege clause which I pray I am misunderstanding, which states:

"Borrower may prepay the principal indebtedness evidenced hereby in whole or in part at any time. No prepayment shall postpone the due date of any installment of principal or interest due hereunder."

My concern...I did the 10 year loan, but have no intention of taking 10 years to pay it because of the interest that would be paid--only did it in case of a very bad month. The total due on the note is about 16,000 dollars (about 6,000 in interest)
Does the last sentence in the clause above require that I pay all the INTEREST stated in the loan REGARDLESS of my prepayment on the note? That's what it sounds like to me. The "No prepayment shall postpone the due date of any installment" I understand. It's the "of principal or INTEREST due hereunder that I am a might bit concerned about. I have never heard of a loan like this.

Please-- can anyone help with this. I am not signing this if my prepayments do not reduce the total interest due. That's the whole point of prepayment! Anyone every pay off a 10 year or 7 year or 5 year note and know the answer to this??

Thanks!

 

[MikeSquared]

"Borrower may prepay the principal indebtedness evidenced hereby in whole or in part at any time. No prepayment shall postpone the due date of any installment of principal or interest due hereunder."

This means you may pay more than your payment due, but the next month payment is still due in full. You can't subtract any of the interest saved by the extra payment from your regular monthly payment.

The interest is calculated on the principal and any prepayment will lower the total interest paid by shortening the length of the loan. You could pay the principal balance in full at any time, including any interest since the last payment, and there are no prepayment penalties.

 

[5infam]

I did not finance my DVC purchase (did a resale and paid cash), but I am a banker and will tell you what I read into this sentance.

"Borrower may prepay the principal indebtedness evidenced hereby in whole or in part at any time. No prepayment shall postpone the due date of any installment of principal or interest due hereunder."

The first part says you can "prepay the principal indebtedness" which means that you can pay off this loan early!! (seems like you get this part).

The second part simply means that if your payment is due on the 15th, and you make an extra payment (not your regular payment, but an extra one)on say the 10th, if you did not pay off the loan in full, your regular payment is still due on the 15th. This is similar to adding a principal payment on your mortgage each month. Say you pay your regular mortgage, but add an extra $100 per month. Each month, your regular mortgage payment does not change. What does change is that your loan will now be paid off earlier than it was supposed to be, if you just made regular payments.

Maybe someone who financed and paid early can give you some more assurance, but it seems like regular bank mumbo jumbo to me!! Bottom line is, the bank puts this language in to protect themselves from people saying "hey, I made extra payments for the past couple of months, so I am going to skip my payment this month" - banking doesn't work that way!!

I hope this helps in some way.

 

[disneycrazed139]

MikeSquared and 5infam...

What you both said makes perfect sense. It was the wording that got me. It sounds like they are saying, "You can pay any and all of the payments any time you want, but you still need to pay a the total due, 120 months X 137.00"

That really scared the heck out of me. I really don't like the wording of it.

Thanks for the reassurance. Any more is certainly welcome.

 

[kathleena]

I was a banker for 20 years and I agree with the other postings. That's all it means.

 

[JimC]

Disney charges interest on the unpaid balance monthly. When you prepay you can say to apply the prepayment to principal only. Your next regular payment will be due as normal and the interest charged for that month will have two components. Interest accrued from last regular payment to the prepayment and interest from the prepayment to the next regular payment. Interest is always paid in arrears. Prepaying will shorten the life of the loan but not change the total amount of each regular payment, except perhaps the final payment, which may now be only a partial payment. It will save you on total interest charges.

 

[mitymott]

No penalty to prepay. We fin. through dvc for 5yrs and pd off
in a little over 2yrs. We made extra principle pmts every month and now it's all ours.