Unpaid Deferred Interest

What's in a name for Connie's special type of loan? Dave breaks it down for her.

QUESTION: Connie asks what the unpaid deferred interest that she’s getting on her mortgage. She got behind on her mortgage because of a premature child. When she pays extra now, should she put it toward the principal?

ANSWER: Deferred means it has been put off. Unpaid means you have not paid it. My guess is that you have an adjustable rate mortgage or interest-only mortgage and you’re not paying the full payment on it, so it’s building up. To pay off your house, both have to be paid. Clean that up so you can get back to having a regular mortgage, and you can put that on deferred interest if you want. Get out of debt and have a fully funded emergency fund before you pay extra on the mortgage.