Mortgage payments - in advance or in arrears

mustang1

I completed on my new flat on 27 July and my agreed date for mortgage payments was coincidentally 27th of the month.

I had set aside a month's extra payment as I thought that today (27th August) they would take out 2 payments (one in arrears for 27 July - 26 August and one in advance for 27 July - 26 August).

They've only taken one and I can't get an answer out of them! Do you generally pay mortgage payments in advance or arrears?

Comyface

I think you pay for the month that you're in each month.

So, your payment in August (whichever date you pay on) will be for 1 - 31 August, your payment in September will be for 1 - 30 September and so on.

So normally in your first payment you pay your contractual payment for that month, plus your initial interest. Was the payment your normal payment, or slightly higher?

You should have really paid your normal payment plus a bit more (the bit more being your initial interest, kind of interest for 28 - 31 July, buit it's a bit more boring than that IYSWIM).

mustang1

Thanks - I've just found the piece of paper which says I pay in arrears! Now I have an extra month's money so best head over to the mortgage free wannabe board

TroJon

Just so you know, interest is usually calculated on a daily basis, so long as you have a month ahead of mortgage payment money, paying on the 1st of the month will pretty much always work out cheaper.

Mrs_Bumble

You pay for the month that you are in.

So when you completed on the 27 July you would have owed up for the period 27 - 31 July and then the August payment should have taken for those few days plus the August payment. So next month's payment should be slightly smaller.

getmore4less

The best time to pay is as soon as you get the money, so for most people that is pay day(or a few days later to allow for late payment by employer).

These days the mechanics of most mortgages is that interst accumulates daily and gets added to the debt once a month, payments reduce the debt.

For most the interest is added the same day as the normal payment is made so you don't notice.

Mrs_Bumble

The other thing to be wary of is when the lender's cut off date for payments to be received is because say for instance the cut off point for payments to be received is the 4th of the following month and you make your payments on the 1st of the month if there is a glitch and the payment fails on the 1st it doesn't give you much chance of getting the payment to them manually before the cut off date and arrears would be registered.