Extreme craftiness - mortgage interest payments

mcw1

Hi

Please don't even start reading this unless you are interested in the finer points of how mortgages are calculated and don't mind possibly having your brain explode!

I'm wondering if anyone else is wise to this
We remortgaged with a fairly well known building society in 2008 - we got a good deal on the interest rate - but when I got the first statement I queried it - and eventually got a letter back detailing how they worked out the interest payments. I couldn't believe what they are trying to get away with.

The first point is the payment date each month. I've had a few mortgages - and they ALL try to get you to pay on the 1st of the month - which means you are paying a months' interest in advance , so the building society are getting an extra months' money thank you very much.
They must make millions by doing this.

So I always change the payment day to sometime towards the end of the month.

When I've done this in the past it hasn't caused any problems - it just means the building society don't get paid until they have actually provided something - ie: a months' worth of loan - but this company are taking it (the p !) a stage further.

The mortgage started on 1st April 2008 - and the interest for that month was listed as "payment due" ON the 1st of April - which is amazing in itself - and then shows my DD payment for that exact amount on the 25th April - so technically I'm still paying slightly early but that's OK - and everybody's happy.

Now I know how to work out mortgage payments and the amount charged for April was exactly correct - fine.
However the amount charged for May was between £10 and £15 more than I calculated. I tried various methods to make it tally - but it was definitely overcharged.

As I said - I queried this - and here's their explanation of how they calculated the interest due for the month of May 2008 :-

"The balances used in the following calculation are those used in April 2008 to calculate the payment from 1st May 2008 . At the time of the calculation there had been no payment made for the month of April and the forward balance to the end of May was projected without including this payment"

So - in other words- although I had paid the interest due for April at a perfectly acceptable time - ie: 25th April - they didn't include it in their calculation because they decided to make that calculation before the 25th of April

This "ruse" is carried through the complete term of the mortgage (which is ending soon ) - the total overcharge will be the best part of £1,000.
Obviously I am re-querying this - but I have done much googling etc and wondering if I am the only person ever to have noticed this practice.

Any comments welcome

Mick

getmore4less

That's not how mine works.

I get interest charge on the daily balance added at the end of the month, any payments come off the balance on the same day they are paid.

This is daily interest with monthly compounding

months have different numbers of days so the interest will be different

goodmorningsunshine

This is right up my street, would just love to try and find if I can make my figures tally with their figures, if I only knew "how".

I think the (your) "secret" is;

Now I know how to work out mortgage payments

Most folk (I speak for myself, really) don't know how to work out
mortgage /interest payments, so just take the mortgage companies word for it.

If I knew how, I would certainly be double checking the figures.

Want to share your "secret"?

goodmorningsunshine

getmore4less wrote: »

That's not how mine works.

I get interest charge on the daily balance added at the end of the month, any payments come off the balance on the same day they are paid.

This is daily interest with monthly compounding

months have different numbers of days so the interest will be different

This sounds exactly like mine,

but would still like to know 'how' the figures are worked out, so I could 'double check'.;)

getmore4less

goodmorningsunshine wrote: »

This sounds exactly like mine,

but would still like to know 'how' the figures are worked out, so I could 'double check'.;)

The "interest rate" will be converted to a daily rate, you can usually work that out if you have enough data.

My Barclays offset mortgage statements gives me daily information that can help work it out.

Thrugelmir

mcw1 wrote: »

The first point is the payment date each month. I've had a few mortgages - and they ALL try to get you to pay on the 1st of the month - which means you are paying a months' interest in advance , so the building society are getting an extra months' money thank you very much.
They must make millions by doing this.

To stop your head exploding. Lenders calculate the amount that's required to repay the mortgage over the entire term of the mortgage at the outset. Then divide this by the number of months in the term. This gives a level payment amount. Which will not change unless the mortgage changes in some way.

So no lenders don't make millions.

Feel free to ask questions.

getmore4less

Thrugelmir wrote: »

To stop your head exploding. Lenders calculate the amount that's required to repay the mortgage over the entire term of the mortgage at the outset. Then divide this by the number of months in the term. This gives a level payment amount. Which will not change unless the mortgage changes in some way.

So no lenders don't make millions.

Feel free to ask questions.

that has little to do with what the OP is on about.

The amount you pay is just a number that gets recalculated every now and then in most cases.

I guess some interest only have a calculation that reflects the interest on month by month basis but even those it will likely be an estimate.


What the OP is on about is the actual calculation of the interest and payments.

Thrugelmir

getmore4less wrote: »

that has little to do with what the OP is on about.

The amount you pay is just a number that gets recalculated every now and then in most cases.

At the outset the standard monthly repayment is calculated to repay the debt plus interest over the term of the mortgage.

Not sure I simpler I can write this.

Has no bearing on the first months interest.

Yes interest rates may change at some point but that has no relevance as it's unquantifiable adjustment at the outset. Hence I said earlier.

"Which will not change unless the mortgage changes in some way."

getmore4less

Thrugelmir wrote: »

At the outset the standard monthly repayment is calculated to repay the debt plus interest over the term of the mortgage.

Not sure I simpler I can write this.

Has no bearing on the first months interest.

Yes interest rates may change at some point but that has no relevance as it's unquantifiable adjustment at the outset. Hence I said earlier.

"Which will not change unless the mortgage changes in some way."

The problem is for most mortgages it is so simple it will be wrong.

They guess the payment, for daily interest mortgages it will almost certainly be wrong as the real monthly interest is different from month to month and they will have used a basic(1/12, 1/365 or similar) amortization calculation for the payment guess.

Things like the weekends and BH mess up everything because the payments are not predictable.

T&C should outline this unpredictability mine do.

goodmorningsunshine

Thrugelmir wrote: »

To stop your head exploding. Lenders calculate the amount that's required to repay the mortgage over the entire term of the mortgage at the outset. Then divide this by the number of months in the term. This gives a level payment amount. Which will not change unless the mortgage changes in some way.

So no lenders don't make millions.

Feel free to ask questions.

If its a daily rate of interest you are charged, then it would be impossible to calculate the mortgage over the entire term of the mortgage surely?

entire term = your fixed term (eg 2 years) or mortgage for 20 years = 20 years?

DaveTheMus

mcw1 wrote: »

When I've done this in the past it hasn't caused any problems - it just means the building society don't get paid until they have actually provided something - ie: a months' worth of loan - but this company are taking it (the p !) a stage further.

They provided the entire loan very beginning of the mortgage.....There is nothing more they can provide throughout the duration of the mortgage, therefore, your logic is flawed, and the pointless exercise of changing the payment date only serves to line the pockets of the BS further....

Stop now and save yourself, according to you, the best part of £1000.