Interest Only Mortgage-best day of the month to make direct debit payment

OceanSound

For an interest only mortgage is there a best day to make the direct debit payment. e.g. on the 1st of every month, the middle of the month or the end of the month. 

In terms of financial planning, I've read that it makes sense to pay the mortgage soon after the Salary/wages hits the current account. However, if the number of days between the end of the month and beginning is a few days, and I'm disciplined with money then I could pay on either of those days.

Are there any further points to consider when choosing a specific day of the month compared to another? Particularly to do with the amount of interest paid. My mortgage is with Halifax Bank.

MWT

Interest is calculated daily on the mortgage so really the only gain is by not having the funds to make the payment sitting in your current account earning nothing while you are paying interest daily on the mortgage, hence the suggestion to pay as soon as possible after your salary payment arrives...

OceanSound

MWT said:

Interest is calculated daily on the mortgage so really the only gain is by not having the funds to make the payment sitting in your current account earning nothing while you are paying interest daily on the mortgage, hence the suggestion to pay as soon as possible after your salary payment arrives...

The halifax bank website says this: 
https://www.halifax.co.uk/mortgages/existing-customers/change-your-direct-debit.html#account

Change the date you pay

• You can only choose a date between the 1st and 28th.

• As your payment needs to be the same day each month.

• The best day of the month to make your monthly payment is the 1st   
• This is because we’ll charge the least amount of interest for the month. For most accounts we calculate interest daily.....

Going by that, the best day to make the payment is on the 1st, so I should have the money sitting in my current account (or actually I could have it in an instant access (IA) savings account at halifax bank or another financial institution if halifax IA rates doesn't suit) for a few days if I get paid at the end of the month. 

edit:I've read many a occasions on my mortgage documents 'Interest is calculated daily', so it's one of the many '...most accounts we calculate interest daily...'.

dunstonh

Going by that, the best day to make the payment is on the 1st

Read the context.  It is the best day because it will charge the least amount for the month.  So, paying on the 1st means you pay less in the month.   

However, if you had the money on say the 25th, then the best day to pay it is the 25th as you avoid another 5-6 days interest.

OceanSound

dunstonh said:

Going by that, the best day to make the payment is on the 1st

Read the context.  It gives because it will charge the least amount for the month.  So, paying on the 1st means you pay less in the month.   

However, if you had the money on say the 25th, then the best day to pay it is the 25th as you avoid another 5-6 days interest.

The context it states is that we want to change the date and the best date to change it to in terms of less interest is the 1 st. There is no hidden meaning. 

Note that the Halifax quote is taking about changing the date. If what you say holds water they would've needed to add a further explanation. I.e. '... although it would be best to pay sooner than the 1st if you can in order to reduce interest paid'. Or did they not say that as it's not in their interest?

MWT

You are looking for complexity that doesn't exist.

The earlier you pay in the month the less interest will have accrued, so just pay it as soon as you can after your salary arrives...

There is nothing magical about the 1st beyond it being the earliest date in the month, which is no help unless you have the money there to pay on that day. 

If you get paid on the 25th then as above, pay it on the 25th, as waiting until the 1st of the next month would cost you several days extra interest...

OceanSound

MWT said:

You are looking for complexity that doesn't exist.

The earlier you pay in the month the less interest will have accrued, so just pay it as soon as you can after your salary arrives...

There is nothing magical about the 1st beyond it being the earliest date in the month, which is no help unless you have the money there to pay on that day. 

If you get paid on the 25th then as above, pay it on the 25th, as waiting until the 1st of the next month would cost you several days extra interest...

No. Not after magic or complexity. I'm looking to change the date. 

The Halifax webpage says less interest if we pay on the 1st. 

I don't get paid on the 25th btw. That was a scenario I used as it may apply to most.

K_S

@oceansound I'll echo what MWT and dunstonh have said above. Assuming that your interest is calculated daily (vast majority of mortgages advanced in recent memory), there is no best day as such to make the payment. 

From your personal finances point of view, the shorter the time the money spends sitting in a 0% interest current account waiting to be taken as a mortgage payment, the better it is for you so with in mind the best date would be as soon as possible after your monthly salary is credited to your account.

Personally, if my mortgage payment depended on receiving a salary that month, I would keep a few days gap between the two just so I account for any delays in the salary being paid, etc. Any extra interest you pay on that account is likely to be tiny.

Snow_Phoenix

I would have thought with an interest only mortgage it would not matter what day you make the payment as the interest would be calculated and charged based upon the amount of days in the month as the capital would remain the same each month as it is not being reduced.

The benefit of making a payment earlier in the month on a repayment mortgage is that you saving paying interest on the reduced capital balance which is calculated on a daily basis.  

OceanSound

Update: Just been on the phone with Halifax mortgages. 

Spoke with a very nice Customer Support Agent. 

I asked him the question. What he said echoed with what is on the Halifax website. If I pay on the 1st of the month, interest will be lower. I then asked him about if the date when we started the mortgage or switched deal mattered (because that may be the date from when the interest amount is calculated). He said it doesn't. My question was based on something I had seen on the Natwest Website. Will post link later.

I then asked him about what the following on their website (https://www.halifax.co.uk/mortgages/existing-customers/change-your-direct-debit.html#account) means and if they have any accounts where the interest is not calculated daily:

 For most accounts we calculate interest daily.

He said for ALL Halifax mortgage accounts interest is calculated daily. He said he's not sure why it says the above in the mortgages section of the website. i.e. For other accounts interest may not be calculated daily but for all mortgage accounts if interest is calculated daily then why not just say that?

Anyway, I then told him that it would've been good to see some kind of of analysis about how much change in the (interest) saving I could see if I change the date from 28th to 1st. 

He then asked for my roll number and after checking the account said that it won't be much difference in the amount of interest saved. 

He explained that as my balance is now around £70,000 and the mortgage payment is around £180 per month, the difference is 42p per month. 

Irrespective of the small sum, I went ahead with changing the date from 28th to 1st. He said there will be two consecutive payments due to the change. i.e. payment at the end of May then the next payment will be on 5 June (monday), then afterwards the payments will be taken on 1st or close to 1st every month. 

BikingBud

OceanSound said:

Update: Just been on the phone with Halifax mortgages. 

Spoke with a very nice Customer Support Agent. 

I asked him the question. What he said echoed with what is on the Halifax website. If I pay on the 1st of the month, interest will be lower. I then asked him about if the date when we started the mortgage or switched deal mattered (because that may be the date from when the interest amount is calculated). He said it doesn't. My question was based on something I had seen on the Natwest Website. Will post link later.

I then asked him about what the following on their website (https://www.halifax.co.uk/mortgages/existing-customers/change-your-direct-debit.html#account) means and if they have any accounts where the interest is not calculated daily:

 For most accounts we calculate interest daily.

He said for ALL Halifax mortgage accounts interest is calculated daily. He said he's not sure why it says the above in the mortgages section of the website. i.e. For other accounts interest may not be calculated daily but for all mortgage accounts if interest is calculated daily then why not just say that?

Anyway, I then told him that it would've been good to see some kind of of analysis about how much change in the (interest) saving I could see if I change the date from 28th to 1st. 

He then asked for my roll number and after checking the account said that it won't be much difference in the amount of interest saved. 

He explained that as my balance is now around £70,000 and the mortgage payment is around £180 per month, the difference is 42p per month. 

Irrespective of the small sum, I went ahead with changing the date from 28th to 1st. He said there will be two consecutive payments due to the change. i.e. payment at the end of May then the next payment will be on 5 June (monday), then afterwards the payments will be taken on 1st or close to 1st every month. 

I would be interested to see when this cannot happen and if the customer is charged interest to accommodate the "close to".

Bank holidays and weekends can fall on any day, does this inhibit payment?

I get only using days 1-28, excluding 29-31, as that ensures this days fall within every month but then to say that it may not happen on 1st seems wrong.