An accounting method, employed principally by thrift institutions, in which all monthly mortgage payments are applied to reduce principal, and all disbursements or charges(such as interest and charges for taxes, insurance premiums, etc.) are added to principal, with interest computed periodically on the actual unpaid principal balance. HUD-FHA does not permit unpaid interest or late charges on delinquent accounts to be included in the amount used as a basis for computing interest.
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