When to make mortgage payment?

Abatement

Hi, I've just moved into a new property as first time buyer with a mortgage. I'm just wondering what the best date for making my mortgage payment is from the point of view of interest calculations.

At the moment it's set to the 20th of every month, and the person on the phone at the mortgage lender (Accord) suggested that it would be better to set it earlier rather than later. She also said that it didn't make any difference what day I picked as between days 1-15, but if I paid on days 16-30 it would cost me a bit more interest overall.

Would somebody mind explaining?

Lender is Accord, and mortgage rate is currently 2.29% variable. Interest rate on my savings is probably about 3% on average (so roughly the same as the mortgage rate after you knock off tax)

Ganga

Hello Abatement, the reason that the FIRST payment will be higher if you pay later in the month is because interest on the morgage is calculated from the day the money is released from the lender.However if your first payment is over a month from the release date ,for example the house is bought on the 21st of May,but you want to pay every month on the 30th your first payment will be interest on a full month plus 10days( you would not pay in may but first payment will be june )after that every month will be the standard payment as it will always be paid one month later

Regards

getmore4less

if they are doing daily interest the earliest you can pay is just after pay day and the interest should be a tiny bit less.

overall it make a small difference, on £100k at 2.29% paying £444pm over 25 years the difference is a max of £360, £1.20pm the reality is it will be less probably the equivilent of a 50p pm overpayment

Abatement

OK, I'm not sure I'm much the wiser, but it sounds like it's not worth losing sleep over anyway!

My second question relates to overpayments. I'm allowed to overpay by 10% of the balance each year to 31 December. I'm fortunate enough to be in the financial position to be able to do this (or a decent chunk of it if not the full 10%).

My current thinking is that given that my savings are earning roughly the same amount of interest as I'm paying on the mortgage I might as well hold on to the money for as long as possible and just throw the whole 10% (or whatever) in at the end of December. That way, if I lose my job or something I've got more flexibility.

Is there any obvious reason why that would be a bad strategy? Is there anything else I need to factor in other than savings interest rate vs mortgage interest rate?

Perelandra

Abatement wrote: »

Is there any obvious reason why that would be a bad strategy? Is there anything else I need to factor in other than savings interest rate vs mortgage interest rate?

Have you taken into account tax?

Interest income is taxable at your marginal rate of interest, so if you're a 20% taxpayer, a 3% savings account is only 2.4% net (unless in an ISA ofc). Overpaying on the mortgage would be worth the full 3% though, as you're paying that mortage interest out of your net pay.

HappyMJ

Abatement wrote: »

OK, I'm not sure I'm much the wiser, but it sounds like it's not worth losing sleep over anyway!

My second question relates to overpayments. I'm allowed to overpay by 10% of the balance each year to 31 December. I'm fortunate enough to be in the financial position to be able to do this (or a decent chunk of it if not the full 10%).

My current thinking is that given that my savings are earning roughly the same amount of interest as I'm paying on the mortgage I might as well hold on to the money for as long as possible and just throw the whole 10% (or whatever) in at the end of December. That way, if I lose my job or something I've got more flexibility.

Is there any obvious reason why that would be a bad strategy? Is there anything else I need to factor in other than savings interest rate vs mortgage interest rate?

If you are planning on losing your job then you don't want more than £6,000 in cash as you will get less benefits such as income based JSA or council tax benefit if you are on contributions based JSA. So I recommend keeping your cash balance to around £6,000 and pay the excess monthly off the mortgage. Pay any credit cards and personal loans off first.