We have customer who has paid their mortgage loan 5 months in advance and the loan will be modifying and monthly payment amount will be changing. I am wondering what should be done with the 5 months paid in advance? Do you pay down the principle with the modification and tell the borrower they are no longer a few months advanced? Do you let the advanced payments stay, though the amounts do not match the new amounts.

There is no escrow on this loan and thank goodness, I haven't even dived into how this sort of advance payment would have affected their annual escrow analysis.

This is a one-off that somehow got set up and is completely new to me so any thoughts would be appreciated.

Your mortgage note should set forth the procedure for applying excess payments.

If you use typical notes based on FNMA, it would not be "paid ahead" regardless of how it is set up in your system..

I may make a full Prepayment or partial Prepayments without paying a Prepayment charge. The Note Holder will use my Prepayments to reduce the amount of Principal that I owe under this Note. However, the Note Holder may apply my Prepayment to the accrued and unpaid interest on the Prepayment amount, before applying my Prepayment to reduce the Principal amount of the Note. If I make a partial Prepayment, there will be no changes in the due date or in the amount of my monthly payment unless the Note Holder agrees in writing to those changes

Thanks - that was perfect. We did use the FNMA note on this one!