Additional interest charge in advance

Kiwiexpat

Hi,
My wife and I are first time buyers with a recently accepted offer on a house and we've had the mortgage accepted with Nationwide which is a good start. I'm confused though as to the initial payment we've been told will be applicable and was hoping for some advice on this if possible!!

Basically, we'll be paying the monthly rate (interest and capital) in advance but they also expect 'Interest charged in the month of advance, payable with your first full monthly payment'. Can anyone give me advice on this as to what this actually means as it seems like I'm paying double interest? Is this normal? It would make sense to me if the payments were retrospectively but I was told they are in advance.

Thanks in advance!

dunstonh

Can anyone give me advice on this as to what this actually means as it seems like I'm paying double interest?

You are not paying doubled interest.

Is this normal?

yes

It would make sense to me if the payments were retrospectively but I was told they are in advance.

Exactly, they are in advance. However, before the first payment is made you could have up to 30 days interest which you didnt pay in advance.

Example, lets use the 1st of the month as the payment date but you complete on the 15th. Your 1st of the month payment will be for the month ahead and the 15 days behind.

danm

a lender typically charges interest on a monthly basis, lets assume for the sake of illustration from the 1st to the last day of the month.


Lets assume you complete on the 15th December. Your first payment would be on the 1st jan. This would be comprised off Interest and Capital for Jan (as you are paying in advance), plus the intesest from the 15th December until the 1st Jan. Remember, that you've had their money since 15th Dec, so need to pay this intersest.

Kiwiexpat

Thanks for the replies;

That makes sense; the interest in advance payment is for the time between completion and first actual payment. The key facts document holds this amount to be the full monthly interest but in reality it would only be this amount if we complete on the 2nd Feb when our stipulated repayment comes out on the 1st of each month.

Thanks for the explanation, the mortgage advisor couldn't explain that...