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Daily Interest: Better to pay on the 1st or doesn't it matter?
dontrun
Posts: 10 Forumite
Hi,
I've just signed up for a Mortgage with the yorkshire BS, who calculate their interest daily. I was planning to pay my mortgage on the 20th of each month (as this is the day I get paid). When I went to into branch to sign for the mortgage, the lady advised me that it's better to pay on the 1st of each month - because if I pay on the 20th, I will be paying an extra 19 days worth of interest every month, which could equate to as much as £5000 extra over a 25 year term! (my mortgage is £130,000)
I didn't question this until I got home and thought about it...
Wouldn't the amount of interest that accumulates between each monthly payment be the same, regardless of whether the payment is taken on the 1st of each month, or the 20th of each month? (i.e. 28-31 days worth of intererest would accumulate between each month's payment, no matter what the payment date is)
The only way I can see it making a difference is for the very first payment, if they start calculating interest from the 1st, and you don't make your first payment until the 20th, THEN I can see how you would accumulate 19 days worth of extra interest for that first month. But then after that, the only extra interest I would think you would pay would be interest on the 19 days worth of interest you accumulated in that first month (which wouldn't be that significant)
Sorry if this is confusing! Thanks to anyone who can help
Chris
I've just signed up for a Mortgage with the yorkshire BS, who calculate their interest daily. I was planning to pay my mortgage on the 20th of each month (as this is the day I get paid). When I went to into branch to sign for the mortgage, the lady advised me that it's better to pay on the 1st of each month - because if I pay on the 20th, I will be paying an extra 19 days worth of interest every month, which could equate to as much as £5000 extra over a 25 year term! (my mortgage is £130,000)
I didn't question this until I got home and thought about it...
Wouldn't the amount of interest that accumulates between each monthly payment be the same, regardless of whether the payment is taken on the 1st of each month, or the 20th of each month? (i.e. 28-31 days worth of intererest would accumulate between each month's payment, no matter what the payment date is)
The only way I can see it making a difference is for the very first payment, if they start calculating interest from the 1st, and you don't make your first payment until the 20th, THEN I can see how you would accumulate 19 days worth of extra interest for that first month. But then after that, the only extra interest I would think you would pay would be interest on the 19 days worth of interest you accumulated in that first month (which wouldn't be that significant)
Sorry if this is confusing! Thanks to anyone who can help
Chris
0
Comments
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yes indeed, there would be a modest saving for the first months payment but thereafter ypu will be paying one months interest
personally, I never arrange payments for the same as my salary but leave a few days; just in case they take the payment early (has been known to happen) or your salary is a day or so late.0 -
NEVER EVER BELIEVE ANYTHING YOU ARE TOLD BY BANK/BUILDING SOCIETY STAFF!!
I think the clue is in the description "DAILY" interest!! it makes no difference when you pay, the interest is calculated based on the balance each day.I am a mortgage adviser.You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0 -
The best day to pay is the day you are paid. Why wait until the first. That for you would be an extra 10/11 days of interest for no reason.:footie:
Regular savers earn 6% interest (HSBC, First Direct, M&S) Loans cost 2.9% per year (Nationwide) = FREE money. 0 -
The best day to pay is the day you are paid. Why wait until the first. That for you would be an extra 10/11 days of interest for no reason.
That's what I thought. It's just with the lady in the Yorkshire telling me it would cost more to pay on any day other than the first I just wanted to make sure!
I may set it for the 22nd then, just in case they ever take payment early! (are they allowed to do this?) ...I'm not too worried about getting paid late as my wages always go in on or before the 20th0
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