When a payment is made upon any debt, it shall be applied first to the discharge of
any interest due at the time, and the balance, if any, shall be applied to the reduction
of the principal. If the payment does not extinguish the interest then due, no interest shall be calculated
on such balance of interest and interest shall be calculated only on the principal
amount up to the time of the next payment. Notwithstanding the foregoing restrictions against charging interest on unpaid interest:
(1) On loans having first priority on real estate and on loans secured by the pledge
or assignment of instruments evidencing loans having first priority on real estate,
the parties by written contract may lawfully agree that unpaid interest when due shall
be added to the unpaid principal balance of the indebtedness and that the increased
principal balance of the indebtedness bear interest pursuant to the terms of the contract;
(2) On loans secured by real estate or secured by real estate and other collateral,
the parties by written contract may lawfully agree that, in the event of bankruptcy,
the lender or creditor may include interest on its claim pursuant to the terms of
FindLaw Codes may not reflect the most recent version of the law in your jurisdiction. Please verify the status of the code you are researching with the state legislature or via Westlaw before relying on it for your legal needs.
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