Morrtgage maths and confusion!

jiggsygee

Hello helpers,

I am a new member to the forum and have been searching for answers to my query, yet have found nothing. I am sure this is something that many people have come across and would benefit, as I would, from any advice.

We are ready to remortgage our property for 138k with another lender having been with N.Rock for 2 years. Our payments go out on the 1st of every month. We are remortgaging on the 1st of August, but have been assured by N.Rock that we do not need to make any more payments, as the redemption of 137,400 will cover all interest due, leaving a small cheque of 600 to be forwarded by sols.

Our new lender has now informed us that we will not pay an amount on the 1st of August but will pay our 950 monthly payment together with an additional payment of 750 to cover interest for the month of August.

We questioned this as we believed that our 950 payment is to cover capital and interest for this period. After some fluffing about by the advisor, we were then told that this is residual interest as our 4 monthly payments will not cover the interest we are paying with our standard payments in the year. (We thought we were paying in advance but told not the case)

We were given some calculations and it seems as though we are paying for interest in advance.. First of all, are calculations all based on an annual basis, i.e. Aug - 31 Dec. Will we see benefits of this overpayment (as we see it, maybe end of year or on completion)? Has anybody had this problem before? Are lenders feeling the squeeze also and therefore trying to scrape every penny they can get off us mere mortals!?

I sincerely hope there is somebody out there who can clear this up for us, and I am sure, many other people out there.. Thanks.

money_maker_3

the extra payment is called initial interest and it is the interest that covers the amount that you have borrowed from the time you get the money to the 1st of the following month and it is only added on with the first payment.

Dan_Collins_2

As money maker says it is initial interest. Mortgages are always paid in advance and lenders do not have time to set dd's up and they dont know you have completed until the solitior confirms.

So they set the dd up for the next full monthly payment in the month following completion.

So if you complete on the 15th of Aug they may set up the dd for the 15th of Sept, the 15th of sept payment will cover from sept to 15th Oct. They charge you the interest only from the 15th of Aug to the 15th Sept to make it easier. It is not an extra payment it is interest you owe.

However do not make overpayments until near the end of the lender interest year. Or you money will sit on the account doing nothing!

jiggsygee

Thanks for the advice so soon Money maker and Dan C..

You have somewhat answered our query.. as we thought we would be paying in advance interest for the year, But still unclear about some ponts you made..

"Mortgages are always paid in advance and lenders do not have time to set dd's up and they dont know you have completed until the solitior confirms."

If this is the case, we should not have accrued anymore interest on our Northern Rock account after our last payment on the 1st July (as in advance), as this should cover all of the interest up until completion on 1st August, this has'nt happened and we have had to pay the daily interest up until this point.

Also if what you say is correct then our 2 year fixed rate should end on July 31st 2010, with our last payment being made on July 1st. (as the interest has been paid in advance)?


"However do not make overpayments until near the end of the lender interest year. Or you money will sit on the account doing nothing!"

In our case the interest year will be up to the end of December, but is this the case with daily interest? Surely if you we were to overpay say 2000 pounds in January on a daily interest mortgage, this would immediately come off the capital balance owed and interest would be recalculated on that amount.

Thanks again..

money_maker_3

In our case the interest year will be up to the end of December, but is this the case with daily interest? Surely if you we were to overpay say 2000 pounds in January on a daily interest mortgage, this would immediately come off the capital balance owed and interest would be recalculated on that amount.

If you paid 2000 then that would be a part repayment, not an overpayment. There is quite a big difference in these. Overpayments are used to amend the amount outstanding as soon as they are paid, whereas most overpayments are smaller regular amounts paid each month and are accrued untill the end of the month and then removed from the balance. The reason they do this is because most companies allow you to use overpayments as underpayments so they need to be 'available'

Dan_Collins_2

Thats the point, daily good annual bad!