Interest Daily v Monthly on a Mortgage

dixie_dean_2

This is my issue though that I cant get my head round - I either pay twice from one pay packet or have extra money added to my loan. If I take the second option and have it added to my loan it's not like I have that £500 free, spare, it somehow vanishes. Also, can anyone shed any light on whjat difference the daily interest will make in my situation as stated?

andrewmp

inca wrote: »

You'll basically be paying 11 months mortgage instead of 12 so the 12th month is added onto the mortgage (should you wish it to be). This will mean that you will pay interest on the extra payment that hasn't been taken over the rest of your mortgage.

The reason being is that Skipton take DDs on the 1st so if they didn't do this and you paid your mortgage on the 28th March (with Scarborough as this is the only date they offer) and then have to pay again on the 1st and your payday is as in my case the 28th you would effectively be paying 2 months mortgage from one pay packet. They are trying to avoid the problems that the change in date may cause for some people, it won't be an issue for everybody but they can't be seen to be disadvantaging people. This is their concession for the change in dates.

They could have avoided this "problem" by taking 28th Feb payment on the 1st March, it's the very next day and would cause less problems. I don't see why I should pay an extra month's worth of interest because I'm making my mortgage payment 3-4 days later. I'd happily pay the extra 3-4 days interest but not an extra month's worth. Why don't they just do this?

dixie_dean_2

Bump...anyone?

Mr._Nice

andrewmp wrote: »

They could have avoided this "problem" by taking 28th Feb payment on the 1st March, it's the very next day and would cause less problems. I don't see why I should pay an extra month's worth of interest because I'm making my mortgage payment 3-4 days later. I'd happily pay the extra 3-4 days interest but not an extra month's worth. Why don't they just do this?

Terms like paying in arrears or in advance are meaningless sophistry with daily interest calculation. You can treat it as moving you payment back by 3 days and "miss" having any payment in the calendar month of March and pay an extra few days interest, or have a payment named for each calendar month but have 2 within days of each other, which practically works closer to an overpayment, and if the mortgage is kept to the term will be paid off 27 days earlier then originally planned.
Technically it's the first option which ultimately earns them more interest then the second, so probably why they are obligated to have the 2nd option as the "default".

andrewmp

Mr._Nice wrote: »

Terms like paying in arrears or in advance are meaningless sophistry with daily interest calculation. You can treat it as moving you payment back by 3 days and "miss" having any payment in the calendar month of March and pay an extra few days interest, or have a payment named for each calendar month but have 2 within days of each other, which practically works closer to an overpayment, and if the mortgage is kept to the term will be paid off 27 days earlier then originally planned.
Technically it's the first option which ultimately earns them more interest then the second, so probably why they are obligated to have the 2nd option as the "default".

The first one is the default though. I see what you mean, it'll make little difference except I'll pay interest on a higher amount for 3 days? IF so, I don't care and the 1st is a better payment date going forward as some companies don't pay you until the last day of the month.

inca_2

Re the 28th Feb/1st Mar arguement you would still have the same situation of only making 11 months payments though as you wouldn't be making a mortgage payment in February you would be making it in March. There will be a whole host of other things that they have to get in place for the merger so I'm assuming that they needed to do it at this point (although I could be wrong, could just be bad planning). I feel for the staff there, many of them still don't know if they will have a job soon.

andrewmp

inca wrote: »

Re the 28th Feb/1st Mar arguement you would still have the same situation of only making 11 months payments though as you wouldn't be making a mortgage payment in February you would be making it in March. There will be a whole host of other things that they have to get in place for the merger so I'm assuming that they needed to do it at this point (although I could be wrong, could just be bad planning). I feel for the staff there, many of them still don't know if they will have a job soon.

Yeah, you're right, we are only making 11 payments this year. We are only making our payment 4 days later though and out of same pay packet. Surely only 4 days extra interest should be added on overall, not another month's payment onto the mortgage balance?

28th Jan
28th Feb
1st April
1st May
1st June
1st July
1st August
1st September
1st October
1st November
1st December

I too feel for the Scarborough staff, haven been given notice of possible redundancy myself only last week.

inca_2

I'm sorry to hear that and will keep my fingers crossed for good news for you.