First payment

smcqis

Gotour offer which said first payment would be nearly twice our monthly repayments. I understand the 1st month pays interest up to rest o month plus 1st payment but does this not depend when we "accept" the offer, hence cant be set amount at this stage? Also it is very close to end of month (hoping to repay 1st of every month) i thought it would be lower.

Can anyone shed any light on this as im not sure i understand. Monthly repayment is approx 500, 1st payment is approx 850

opinions4u

Talk to your lender for absolute clarity as to what you should expect to pay. If you are referring to a mortgage offer, it doesn't know when you will complete (become the homeowner) so it will give an example.

Typically your first payment will be for the remaining days of the current month and the whole of the following month. So complete on the 20th June and budget for a first payment of one and a third of a month, followed by a second payment in August.

As I said, different lenders do things in different ways, but if you budget for two full months up front you'll have change left over when the exact figures become apparent.

TrickyDicky101

I would establish exactly when your first mortgage repayment will be taken because it is only in the bank's interest to delay first payment until as late in the day (or month) as possible (so you suffer maximum interest charge on the full advance).

Recently, when I was arranging the terms of my mortgage with Nationwide, I raised this very point with the adviser (inhouse Nationwide guy) and he claimed that while the first payment might be higher than a normal one, over the term of the mortgage you still paid the same in total. This is utter crap and I told him so. He wouldn't believe me. It is very much in your interest to ensure your first repayment (including the interest uplift) occurs as soon as possible after Completion (assuming this is the date when the mortgage is actually advanced). Don't let yourself be fobbed off over it.

InMyDreams

Tricky, I'm really not sure it's such a big deal. You will pay interest on the outstanding amount for every day that you have borrowed it. The capital repayment element of the first payments will be so small (usually) that it really will make little difference, and if you are so bothered about that then just borrow a few pounds less to start with. Or shorten the term by a month or something. Or make a small overpayment in that first month if you can.

TrickyDicky101

InMyDreams wrote: »

Tricky, I'm really not sure it's such a big deal. You will pay interest on the outstanding amount for every day that you have borrowed it. The capital repayment element of the first payments will be so small (usually) that it really will make little difference, and if you are so bothered about that then just borrow a few pounds less to start with. Or shorten the term by a month or something. Or make a small overpayment in that first month if you can.

My mortgage started on 4th August 2005 with repayments scheduled for 1st of the month. 1st repayment was 1st September 2005. Normal monthly repayment was £785 but repayment on 1st September 2005 was around £1350-ish representing the £785 plus interest on the full £135k advanced for the period 4th August to 1st September.

So I paid in excess of £550 for the privilege of delaying my initial repayment by 25-odd days. That was a big deal to me.

kingstreet

smcqis wrote: »

Gotour offer which said first payment would be nearly twice our monthly repayments. I understand the 1st month pays interest up to rest o month plus 1st payment but does this not depend when we "accept" the offer, hence cant be set amount at this stage? Also it is very close to end of month (hoping to repay 1st of every month) i thought it would be lower.

Can anyone shed any light on this as im not sure i understand. Monthly repayment is approx 500, 1st payment is approx 850

In the old days, banks charged in arrears and building societies charged in advance. So if you got a mortgage from a bank, you'd normally pay one month's payment a month after completion.

The building society system made it difficult. If you complete half way through a month, you'd pay half a month's interest (known as accrued interest) plus a full month's payment on top. That would be about two weeks after completion.

If you get a mortgage from a lender like Halifax today, they still use the advance payment system, so the point you complete in the month will influence the size of your first payment.

In addition, Halifax mortgage offers have an assumed completion date which triggers enormous confusion as everyone thinks they will start to pay from then, even if they don't complete. That isn't the case.

Best advice to you is keep two months payments on one side to cover the accrued interest and first regular payment. They will write to you at completion and notify you of what payments will be made and when.

GMS

TrickyDicky101 wrote: »

My mortgage started on 4th August 2005 with repayments scheduled for 1st of the month. 1st repayment was 1st September 2005. Normal monthly repayment was £785 but repayment on 1st September 2005 was around £1350-ish representing the £785 plus interest on the full £135k advanced for the period 4th August to 1st September.

So I paid in excess of £550 for the privilege of delaying my initial repayment by 25-odd days. That was a big deal to me.

So now your mortgage will finish on the 4th August 20xx rather than the 1st September 20xx meaning you will not pay interest on the days between the 2 dates at the end. What you seemingly pay more of up front you will save at the end.

TrickyDicky101

GMS wrote: »

So now your mortgage will finish on the 4th August 20xx rather than the 1st September 20xx meaning you will not pay interest on the days between the 2 dates at the end. What you seemingly pay more of up front you will save at the end.

That is incorrect: I will still make 300 repayments (25 year term * 12 months = 300 repayments) at the original level of £785 (assuming no change in interest rates, no over payments etc). Plus I have paid an additional £550 to delay the first repayment from day 0 (repayments in advance due to Nationwide being a building society as Kingstreet pointed out) to day 26-odd. This is an additional cost I have to bear.

I'm not complaining (knowledge is power after all) but if you have a provider who expects repayments in advance, it is something you need to take into account.

InMyDreams

TrickyDicky101 wrote: »

My mortgage started on 4th August 2005 with repayments scheduled for 1st of the month. 1st repayment was 1st September 2005. Normal monthly repayment was £785 but repayment on 1st September 2005 was around £1350-ish representing the £785 plus interest on the full £135k advanced for the period 4th August to 1st September.

So I paid in excess of £550 for the privilege of delaying my initial repayment by 25-odd days. That was a big deal to me.

Still not sure I see the problem. If you hadn't delayed the repayment, presumably you would still have had to come up with the £785, but 25 days earlier, and then on top had to pay another £785 on the 5th September. Would you have preferred this?

Edited to add: Actually, I'd have more of an issue with the fact that your payments need to be in advance... I'm sure that's really the thing that will have the biggest impact over the term of your mortgage. The £550 interest for the first 25 days seems completely reasonable to me.

Edited again to add: You could look at it as £550 is the additional cost of every single one of your 300 payments being 25 days 'late'. That's less than £2 per late payment.

TrickyDicky101

InMyDreams - what you are saying is correct, but it is an additional cost to bear. Your first paragraph contains my preferred outcome - and would result in me being £550 better off. You are also correct in stating it is the result of repayments in advance. Why pay additional expense when you don't have to (simply be rearranging the payment dates)? Again, I'm not complaining about this - I am simply saying it is something to take into account (as I didn't do originally - but older and wiser now!).

smcqis

So lets say in theory I complete this week, can I have my repayments come on 1st of every month and hence save interest mounting up in first payment or does there have to be a minimum amout of time pass?