Q: What is the difference between simple interest and compound interest? My mortgage loan merely states I have to pay 8 percent interest. My loan is from a doctor’s retirement fund, and I believe I am being charged interest on interest.
A: If you are financially able, pay off your 8 percent loan and get a more favorable interest rate. You are dealing with what is known as a hard money lender; some people call such lenders loan sharks. I make no allegations against your lender because there is a need in this economy for such loans, but too many of those lenders take advantage of uneducated and low-income families.
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Simple interest means it is calculated only on the amount of the principal loan. For example, if you borrowed $100,000 at 8 percent, assuming you did not pay down the loan, every year you will be charged $8,000. If you keep the loan for four years, you will have to pay $32,000 in interest ($8,000 x 4). Here’s the formula for calculating simple interest: simple interest = principal x interest rate x term of loan.
Compound interest, on the other hand, means the interest is added to the principal and next year’s calculation is based on that new number. In our example, in the second year, the interest will be $8,640 ($108,000 x 8 percent) and so on; at the end of the four years, you will have to pay $36,048.90. The formula: compound interest = total amount of principal and interest in future years less principal amount.
As you can clearly see, compounded interest will be considerably more expensive. Case law throughout the country makes it clear that unless your loan document specifically states you are paying compounded interest, the lender must only calculate it as simple interest. And many state laws dealing with residential mortgages do not permit compounding.
Q: I live in a 12-unit condominium. A few years ago, my downstairs neighbor rented out his unit to new tenants, who have been an absolute nightmare. They are constantly fighting loudly and late at night. Their teenage child has destroyed neighbors’ property and vandalized common property. I have called 911 on them several times for violent fighting and noise complaints. Their landlord ignores me when I try to contact him. The police say they can’t do anything because by the time they show up there is nothing to see. The alderman won’t do anything because the police haven’t done anything, and the board has only doled out a few modest fines. Is there any other action that can be taken against the tenants or their landlord?
A: Community living is democracy at its best and at its worst. I know it won’t be a consolation to you, but you are not alone. I get many similar email concerns from readers all over the country.
There are three things you can do, and do them all at once. Hire an attorney and file a lawsuit against the board for failure to deal with this problem, especially if the teenager is destroying common property; the landlord for allowing a nuisance; and the tenants for creating a nuisance.
You should have proof. Get neighbors to listen to the commotion; if you can videotape the nuisance, that would be helpful. And keep records of all of the unanswered complaints you have made against the three defendants.
Yes, litigation can be expensive. But your condo is most likely your largest investment, so you only have three options: file suit, accept the noise and live with it or sell and move out. However, you may have to disclose the noise and the nuisance to potential buyers, so that might not be a viable option.
Benny L. Kass is a practicing attorney in Washington and Maryland. No legal relationship is created by this column.