You are carrying a note and your buyer wants to make an “extra payment.” What does he mean by extra payment and what do you interpret extra payment to mean?
Normally, the buyer wants to pay in advance the next month’s payment – principal and interest. Sometimes, he wants to make an extra payment and have 100% allocated to principal.
Over the years, this simple act has caused confusion, tension and anger between the parties because they misunderstand each other. I have had transactions fall apart. The buyer feels his principal balance is lower and the note holder may want it higher to get a higher price for his note.
This issue is not common, but seems to happen when there are language differences or the note holder is doing his own accounting. If the note holder simply asks, “What do you mean by extra payment?” would probably avoid any confusion.
Make sure the words you use mean the same thing to your buyer.
