First month of re-mortgage - how to avoid interest?

ak07906

Hi,

I'm coming to the end of a fixed deal (ending last day of the month, say 30th June, early repayment charges apply up to the very last day).

Remortgage with new lender would therefore start on the next day of the following month (1st July), however the first payment is collected the month after ("We collect your first payment the month after your mortgage starts"), accruing additional interest during the whole month of a still substantial mortgage amount. 

To avoid this additional interest, would it be worth waiting with completion until the END of July, thereby going on my existing lender's SVR  for a bit (only accruing a day or so additional interest until first official payment under the new deal), as the old SVR monthly payment is £400 less than the projected first (larger) payment of the new mortgage? Or have I completely misunderstood?

Or does all this mean I won't be paying ANYTHING in July (just the additional month's interest in August), and therefore should absolutely stick to the 1st July completion date?

Thanks in advance for any clarification on this transition period!

Emmia

Why don't you just take a new product (aka a new fix) out with the same lender? This is much easier and seamless - plus no additional checks.

ak07906

Emmia said:

Why don't you just take a new product (aka a new fix) out with the same lender? This is much easier and seamless - plus no additional checks.

Thank you. Better rates elsewhere just make it worth my while to switch. I am just really unsure how much 'double counting' there is during the switch period and how to set the completion date to work to my maximum advantage.

Hoenir

There's no additional interest. Every monthly repayment is in arrears throughout the term of the mortgage. If you wish to reduce the interest charged make overpayments. This will also clear your mortgage quicker in the longer term. 

ak07906

Hoenir said:

There's no additional interest. Every monthly repayment is in arrears throughout the term of the mortgage. If you wish to reduce the interest charged make overpayments. This will also clear your mortgage quicker in the longer term. 

Thank you very much. So if payments are in arrears and I start the new mortgage with the new lender on 1st July in my example, then I can expect a usual direct debit payment on the 1st of July from my OLD lender to cover the month of June? And 1st of August payment with the NEW lender covers any down-payment / interest from July? In that case I don't see why the first re-mortgage payment should be any larger than the future ones... Sorry for the slow uptake.

Hoenir

In terms of a straight remortgage I'm unsure why there'd be a substantial amount of additional interest. 

As a borrower is required to have 10 days advance notification of a direct debit being taken. The only occcasion where additional interest accrues is where there's insufficient time for the direct debit to be set-up. The first payment slipping from the 1st of the month following to the next month, i.e. 1st September for a new mortgage completed in July. 

kingstreet

On the day the remortgage takes place you stop paying your old lender and start paying your new lender. There is no overlap.

Accrued interest is only charged to cover the payment for the month of completion as it won't have a payment of its own. If lenders collect "in advance" this means your final payment will be a month before the end of your mortgage not on the day the mortgage ends.