Broken interest.....

gogsboy

Can someone explain this exactly, someone I know has just gone for first mortgage and the keyfacts state that the first payment would be higher than the rest as its including this broken interest.

Is this a fair charge as I have never heard of it and cant say I was ever charged higher for the first month or maybe I'm forgetting?

Madjock

It's the initial interest which is charged from the date your friend's solicitor gets the mortgage monies to the end of that month.

i.e., if the solicitor gets the money next Thursday 19th April, there will be interest added from 19/04 - 30/04. Not all lenders charge this as some collect the mortgage payment in arrears.

Mr_helpful

Its not even a charge. Its the interest up to when the first payment come out eg if he moved in on the 15th but his payment day is the 1st of the month his first payment is a month plus the days from when he moved in to the first of the month. After that its monthly amount

gogsboy

That makes sense then, the move in date is around the 18th of the month.

I guess this is pretty much standard practice then, I just couldn't recall that happening with me but it was some time ago now

JK-R

How about when you are not moving house and you are staying with the same bank, if you are just changing the mortgage deal, how is the broken interest justified then? Should there be any?

Locoblade

There shouldnt be no, you'd only get this when first taking out a mortgage really. For any remortgage you'll get charged interest on your existing mortgage up to the day it transfers, then charged interest at your new rate from that day onwards. Even if you move lenders and your new lender charges you that additional amount initially, it would be roughly cancelled out by the lower charge from your existing lender because you only accrued interest for say 2 weeks rather than the whole month.

e.g.

You're currently with Lender A, paying £1000 a month interest only, and you move to Lender B on the 15th of the month.

Although Lender B may initially charge you £1000 + £500 for the extra 2 weeks to align you with end-of-the-mnth payments, the last payment you would have made to Lender A would only have been £500 because it was only with them for 2 weeks, so it cancels out the additional £500 youve paid to the new lender.

dunstonh

JK-R wrote: »

How about when you are not moving house and you are staying with the same bank, if you are just changing the mortgage deal, how is the broken interest justified then? Should there be any?

Interest is chargeable daily. So, if you change deal in the middle of the month you will get x number of days on one rate and y number of days on the other. The first payment after will have to take that into account. If the rate has gone up then the first payment will go up. It will go down if the deal is lower.

Toughluck

gogsboy

your comment rattles me. Why do you people always think its a fair charge for anything. Next you'll ask if you can get compensation for this. If youo do not want to pay for things don't buy it.

If you leant me £10000 on the 12th September 2008 and asked you if I could pay no interest to the end of September and start payments from October 1st are you likely to say that is OK? Of course your not becasue you will lose out on interest payments. The principle is the same here with a mortgage but on a much larger scale.

dunstonh

gogsboy

your comment rattles me. Why do you people always think its a fair charge for anything. Next you'll ask if you can get compensation for this.

There has been a lot more of this recently. The site is seeing an increase in people
1 - making assumptions that fees have to be justified for the level of work done
2 - that every transaction is only a few keyboard presses.
3 - wanting compensation.

However, I doubt gogsboy will read this as the thread is over a year old and he hasnt visited the board in many months.