Extreme craftiness - mortgage interest payments

PeacefulWaters

If they calculate interest daily and you're paying later in the month then you are being charged more interest than if you pay on the 1st of each month.

So thanks for the long post (with no calculations), but it's flawed in the extreme.

Dave_the_Ginger_Cat

I have worked for software suppliers of the systems mortgage firms calculate their interest, and now we're in the world of daily interest, there is no ruse, no hidden stuff. They calculate the interest for each day based on what's outstanding, so you always get the benefit of the money. I have also worked for lenders where I've had to prove it, and I can always get them to balance to the penny using excel, though it's time consuming to do

If it were really deceitful, do you really think it would not have been challenged in court by now given the current climes?

Dave_the_Ginger_Cat

PeacefulWaters wrote: »

If they calculate interest daily and you're paying later in the month then you are being charged more interest than if you pay on the 1st of each month.

So thanks for the long post (with no calculations), but it's flawed in the extreme.

Yep, bang on. You are choosing to pay later, ergo you get charged more interest - you're just paying the precise amount for what you've borrowed

mcw1

Interesting to see so many posts - it's not surprising that the lenders can get away with so much when they appear to have so many "supporters" ready to explain any crazy logic they may choose to apply.

1st point - payment date

I pay by monthly direct debit - and if they had their way I would be paying that amount on the 1st of the month FROM THE START DATE OF THE LOAN - which whatever way you look at it means that they would be getting paid a month in advance.

The whole point of a loan is that you borrow money - and then pay it back over time.
At the end of a month you owe a months interest ( they may well calculate it daily anyway).
If you pay in advance they are getting interest for a time period that has not yet elapsed.

As I stated originally - for all my previous mortgages I simply chose a monthly payment date that suited us , and never had a problem agreeing their charges thereafter.

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2nd point - overcharging


My current lender sent me the calculation of how they worked out the payments ,and this is a fairly standard calculation - I have no problem with that.

The difference with this company - the bit I am amazed about - is the fact that for the second month of the mortgage (May) - they ADDED the amount of the first months (April) payment to the balance - (which I DID pay in April exactly as agreed) - THEN applied their interest calculation.

Yes that's right - the repayment balance for May (which I have in writing in their calculation) is actually hundreds of pounds MORE than the amount I originally borrowed in April.

Their reasoning for this (as they state) is that the April payment had not been received AT THE TIME OF THE CALCULATION. Now even if you allow them that luxury - there should afterwards be an adjustment made once they had seen that the previous months' payment WAS paid in the allowed time.

This gives them a nice £10-£15 a month extra income from my account - apply that to thousands of other customers - that sounds like millions to me.

I have never come across this practice before - NONE of my previous lenders worked this way
The reason for my posting was to see if anyone else had experienced this and what they did about it.

Mick

getmore4less

mcw1 wrote: »

Interesting to see so many posts - it's not surprising that the lenders can get away with so much when they appear to have so many "supporters" ready to explain any crazy logic they may choose to apply.

1st point - payment date

I pay by monthly direct debit - and if they had their way I would be paying that amount on the 1st of the month FROM THE START DATE OF THE LOAN - which whatever way you look at it means that they would be getting paid a month in advance.

The whole point of a loan is that you borrow money - and then pay it back over time.
At the end of a month you owe a months interest ( they may well calculate it daily anyway).
If you pay in advance they are getting interest for a time period that has not yet elapsed.

As I stated originally - for all my previous mortgages I simply chose a monthly payment date that suited us , and never had a problem agreeing their charges thereafter.

---

2nd point - overcharging


My current lender sent me the calculation of how they worked out the payments ,and this is a fairly standard calculation - I have no problem with that.

The difference with this company - the bit I am amazed about - is the fact that for the second month of the mortgage (May) - they ADDED the amount of the first months (April) payment to the balance - (which I DID pay in April exactly as agreed) - THEN applied their interest calculation.

Yes that's right - the repayment balance for May (which I have in writing in their calculation) is actually hundreds of pounds MORE than the amount I originally borrowed in April.

Their reasoning for this (as they state) is that the April payment had not been received AT THE TIME OF THE CALCULATION. Now even if you allow them that luxury - there should afterwards be an adjustment made once they had seen that the previous months' payment WAS paid in the allowed time.

This gives them a nice £10-£15 a month extra income from my account - apply that to thousands of other customers - that sounds like millions to me.

I have never come across this practice before - NONE of my previous lenders worked this way
The reason for my posting was to see if anyone else had experienced this and what they did about it.

Mick

If they are doing daily compounding and crediting your payments to reduce the ballance then it WILL work out correctly. but you should make your payments sooner rather than later.

Thats what you need to check is the payment just an estimate for the next months interest.

What is the new ballance after the payment has been made?

Goldiegirl

mcw1 wrote: »

2nd point - overcharging


My current lender sent me the calculation of how they worked out the payments ,and this is a fairly standard calculation - I have no problem with that.

The difference with this company - the bit I am amazed about - is the fact that for the second month of the mortgage (May) - they ADDED the amount of the first months (April) payment to the balance - (which I DID pay in April exactly as agreed) - THEN applied their interest calculation.

Yes that's right - the repayment balance for May (which I have in writing in their calculation) is actually hundreds of pounds MORE than the amount I originally borrowed in April.

Their reasoning for this (as they state) is that the April payment had not been received AT THE TIME OF THE CALCULATION. Now even if you allow them that luxury - there should afterwards be an adjustment made once they had seen that the previous months' payment WAS paid in the allowed time.

This gives them a nice £10-£15 a month extra income from my account - apply that to thousands of other customers - that sounds like millions to me.

I have never come across this practice before - NONE of my previous lenders worked this way
The reason for my posting was to see if anyone else had experienced this and what they did about it.

Mick

From what you are saying, I think you completed your mortgage at some point in April, and paid the initial interest payment in April?


I can only assume that they base their calculations on a worse case scenario, and assume that you don't make that initial interest payment, then give you a normal monthly payment based on the total mortgage advance, plus the initial interest. This would then ensure that the mortgage was paid off in full at the end of the mortgage term, even if you didn't pay the initial interest in April.


As you DID pay the initial interest, yes, the monthly payment is slightly higher than it needed to be. But this isn't money 'going into their coffers'. It's money that you are paying into your mortgage account. So you are benefiting from this. As you are paying slightly more than is needed, your debt is reducing at a slightly faster rate, so you will pay slightly less interest.

getmore4less

Since this mortgage goes back to 2008 perhaps the OP can provide the actual information on the mortgage ballances amounts paid and dates and the calculations they used and thos tht the mortgage companty told him they use.

These can then be checked against the potential senarios for interets calculations and compounding senarioes.


I know for my mortgage it is relatively simple as I get a statement with the daily ballance interest added and payments made

Dave_the_Ginger_Cat

mcw1 wrote: »

Interesting to see so many posts - it's not surprising that the lenders can get away with so much when they appear to have so many "supporters" ready to explain any crazy logic they may choose to apply.

Personally I side with whichever party I think is right - whilst I work for a lender, I acknowledge that things do go wrong. I'm not sure they've done it wrong, I personally think they've explained it badly. We'll see...

mcw1 wrote: »

My current lender sent me the calculation of how they worked out the payments ,and this is a fairly standard calculation - I have no problem with that.

The difference with this company - the bit I am amazed about - is the fact that for the second month of the mortgage (May) - they ADDED the amount of the first months (April) payment to the balance - (which I DID pay in April exactly as agreed) - THEN applied their interest calculation.

Would you be willing to post an anonymised copy? Am fascinated