Permissibility Of Lender Selecting The Method Of Simple Interest Amortization Used To Service Second Mortgages - Q1 1999

By the Division of Banks

There is no statute or regulation in Massachusetts that requires a certain method of calculating interest and applying payments on a second mortgage loan. It is the position of the Division that the loan documents and required disclosures would have to contain the method to be used and be an agreed upon part of the contract between the parties. However, it appears that the common practice in Massachusetts is the use of the amortization schedule. A deviation from that standard to the disadvantage of the consumer could be viewed as an unfair and deceptive practice under the Commonwealth's Consumer Protection Act, chapter 93A of the General Laws. Mass. Gen. Laws chapter 140, section 90A, establishes a maximum interest rate of 18% on second mortgage loans on 1-6 family, owner-occupied properties which have an assessed value of $40,000 or less. The maximum interest rate on these loans cannot be exceeded even by agreement of the parties as to a method of calculating interest and crediting payments.