Mortgage question

geocatwest

Hello!
My property is £205,000 and I put down £78,500 deposit. I've got my mortgage offer with 3-year fixed term interest rate - 1.74% while borrowing £128,500. In the mortgage offer, it says the monthly repayment is £408 for 3 years (39 payments of £408.33). The total term would be 35 years consisting of 420 payments (380 of which are of SVR of £523.33)
My understanding is that the monthly repayment includes the loan + interest. However, the bank charged me £250 on top of the £408 payment this month. I wondered if that is making sense or they charged me by mistake? So I'm very confused why the bank charge me £250 on top of my regular monthly repayment £408? 

Kt87

Hi is this your first payment? could it possible be that there was a product fee or arrangement fee attached? Check your paperwork as many banks charge lots of admin fees etc which are taken either before or upon first payment. K

geocatwest

Kt87 said:

Hi is this your first payment? could it possible be that there was a product fee or arrangement fee attached? Check your paperwork as many banks charge lots of admin fees etc which are taken either before or upon first payment. K

Hi there, yes this is the first mortgage payment and the £250 is listed in my account as Debit Interest.
Fees
Conveyancing fee of £295 - this is fee that is paid direct from myself to the solicitor

Broker Fee: £495 - Paid
Electronic Funds Fee of £17 - paid

MovingForwards

First payment is always higher because interest is due from drawdown to first payment.

ACG

The £250 sounds like interest between when you completed and your first payment. 

Lets assume your DD goes through on the 1st of the month and you completed on the 15th of the month. You would have about 15th days worth of interest (£250) + your normal DD payment £408. 

Next month it should just be the £408. 

You should get a letter from the lender confirming this is you have not already.

geocatwest

ACG said:

The £250 sounds like interest between when you completed and your first payment. 

Lets assume your DD goes through on the 1st of the month and you completed on the 15th of the month. You would have about 15th days worth of interest (£250) + your normal DD payment £408. 

Next month it should just be the £408. 

You should get a letter from the lender confirming this is you have not already.

I completed on 22 May and the first payment was issued on 1 July (of £476.18) on top of debit interest of £250.49. Are you suggesting the bank charged me £250.49 for a payment from 22 May - 1 July as a 'late payment?'

Petriix

It's not a late payment penalty, it's just to cover the interest for that period. Mortgage interest is (normally) calculated daily and paid monthly.

Your regular monthly payments will be calculated to cover the interest and pay off the capital over the entire term. Everyone has to pay the additional interest accrued up to the first regular payment.

If your mortgage allows then making overpayments will save you interest over the entire remainder of the term, so overpaying early will save you more in the long run.

geocatwest

Petriix said:

It's not a late payment penalty, it's just to cover the interest for that period. Mortgage interest is (normally) calculated daily and paid monthly.

Your regular monthly payments will be calculated to cover the interest and pay off the capital over the entire term. Everyone has to pay the additional interest accrued up to the first regular payment.

If your mortgage allows then making overpayments will save you interest over the entire remainder of the term, so overpaying early will save you more in the long run.

Thanks! If we go back in time, let's say I put in £400-500 on the 22 May (I completed on the 22 May) then I would not have seen this £250 charge. Is this correct? 
Going back to what ACG said - from now on, I will only pay £408 for the rest of the fixed term and no additional payments?

Petriix

No, you couldn't have avoided the £250 charge. If you'd have paid £500 on 20 May you would have saved around 20 pence in interest in that initial 9 day period, and around 2.4p per day for the remainder of the fixed term.

The only way to have avoided that initial £250 payment would have been to avoid taking out a mortgage at all. What you don't seem to understand is that interest on your entire outstanding capital balance is charged every single day. Your monthly payment covers all the interest and chips away a small (but ever increasing) amount of the capital.