Am I right in saying that...

notoriouseddie

...assuming I get paid at the end of the month, the best time for me to pay my mortgage repayments would be at the end of the following month?

Hi,

I've just had my first mortgage arranged and I currently get paid at the end of the month. My mortgage repayments are due on the 1st of the following month meaning my money is barely in my account before its off again being repaid to my mortgage lender.

Would it be wiser for me to arrange for my mortgage payments to come out my account at the end of the month meaning that my wages can accumulate interest in a savings account before they are whisked away by my mortgage lender?

I realise by delaying my payments from the 1st of the month to the 28th I'll be paying significantly more interest for that month but surely it would be worth it in the long run?

I hope that made sense! and look forward to your comments.

Cheers

getmore4less

which interest rate is the higher?

notoriouseddie

Mortgage = 5.34 fixed for 5 years
Bank/Savings = 3ish

The way I see it is that if I decide to change my payment from the 1st to the 28th of the month, then I will pay my regular fixed mortgage repayment PLUS interest accumulated between the 1st and the 28th, then the following month i will revert back to my regular monthly repayments.

If for example the accumulated interest is 600 quid, then I would easily make that money back over the course of the mortgage in interest if I had my earnings in the savings account for longer

getmore4less

Mortgage interest is more pay the mortgage as soon as the money is in the bank.

Your thinking is wrong

The interest accumulates in the saving account AND on the mortgage.

opinions4u

Assuming your mortgage charges interest daily, in the same way that a savings account will accrue interest, then you should aim to pay your mortgage at the earliest possible point in time.

Based on the interest differential you posted (2.34%) you are suggesting paying around £180 more in interest on your mortgage than you need to, allowing for the lower level of interest you would earn back on your savings (assuming a £100k mortgage).

£100,000 x 2.34% x 28 days / 365 days in a year.

This assumes your savings rate is 3% after tax.

I realise by delaying my payments from the 1st of the month to the 28th I'll be paying significantly more interest for that month but surely it would be worth it in the long run?

Paying more interest is worth it in the long run? Do you really believe you typed that?

Jacka87

I realise by delaying my payments from the 1st of the month to the 28th I'll be paying significantly more interest for that month but surely it would be worth it in the long run?

Paying more interest is worth it in the long run? Do you really believe you typed that?

The poster did not say that paying more interest is worth it in the long run. He said if he paid more interest for a single month then surely the fact that paying less interest for every other month that he has his mortgage, lets say 25yrs! Then that would save him more money.

His point is based on the fact that his savings would gain interest and that although on the first month will cost him, every other month he is (by his thinking) not going to be paying any extra on his mortgage and benifiting on the savings.

I think the issue here is simple. If you move your mortgage payment date back, ie from 1st of month to 28th of month then what happens in the 28 day extension period. Effectivly you will only pay one months payment but it will have been almost 2 months since the last payment. Does that mean you fall behind on the payments and thus get charged interest for every month thereafter. Or does changing the mortgage payment date in that manor not affect the interest. The point being that on the second occasion that you pay on the 28th it will have only been 1month since lat payment and thus you are back to usual costs?

Jacka87

Just another point, would it not be possible to bring he mortgage payment forward by 3days instead of moving it back by 28days?

Ok that would mean you would have to pay 2 months mortgage in the first month this happens but every other month after your salary would sit in interes for the month? I suppose the fact that you paid a double payment at first would mean that you would have took thjis money from a savings account or something in the first place?

getmore4less

Jacka87 wrote: »

Just another point, would it not be possible to bring he mortgage payment forward by 3days instead of moving it back by 28days?

Ok that would mean you would have to pay 2 months mortgage in the first month this happens but every other month after your salary would sit in interes for the month? I suppose the fact that you paid a double payment at first would mean that you would have took thjis money from a savings account or something in the first place?

Having any money sitting earning interest at a lower rate than the mortgage cost you money.

There is nothing magic you can do.

There are 3 rules to borrowing money

Borrow the smallest amount you can.
Borrow for the shortest time you can.
Borrow at the lowest rate you can.

all these "tricks" fall foul of rule two