Higher payment for the first month

maveli

Why is the first months's mortgage payment is always more than the rest of the months ? How is this affect remortgaging ? Really confused!! If I re-mortgage with my current provider will they charge this extra amount. I know I can get an answer from my bank, but running out of patience with their customer service (holding the phone for last 30 minutes)


Any reply greatly appreciated.

MickHG

Hi, I don’t know why there is this initial extra charge but I can tell you that the difference between paying this extra amount, and paying a single fixed payment every month is not much.

I have run both situations on a spreadsheet and have found the following:-

Case (1) Borrow £100,000
Repayment Mortgage with APR of 7.3%, equals one initial payment of 571.33 plus 300 payments of £706.14 Total repayment = £212499.72
Actual APR calculated = 7.29%

Case (2) Borrow £100,000
Repayment Mortgage with APR of 7.3%, No initial payment, 300 payments of £708.33 Total repayment = £212499.72 .Actual APR calculated 7.255%

This calculation was chosen to show the effect on the APR between the two situations when the Total repayments were kept the same.
It is interesting to note that the more you pay of up front the greater the APR

As shown below:-

Extra Initial Payment

---

Resulting new APR

---

300 Repayments of:-
50k

---

---

12.9729%

---

£541.66
25k

---

9.2553%

---

£625
10k

---

7.9354%

---

£675
£571.38

---

7.2905%

---

£706.43
0

---

7.255%

---

£708.33

NB 300 monthly payments = 25 Years

This still doesn't answer why !!!!, it would be interesting to know.
Regards Mick

Sooler

Because it will include ‘initial interest’, the interest you owe on the amount you’ve borrowed for the period from the completion date to the end of the month. Your mortgage starts the first month after the completion date.
Complete on 25th Jan you’ll owe 7 days interest 25th – 31st
Your first mortgage payment would be for February + the initial interest

http://www.moneynet.co.uk/glossary/glossary-i-l.shtml
Initial Interest
This figure is usually shown on the mortgage completion statement and refers to the amount of interest charged from the date that the funds are drawn down to the first repayment date. This has the effect of increasing the first mortgage payment and the amount of the initial interest payable will depend on the time in the month when the mortgage is completed. For example, if the mortgage payment is due on the 1st of the month and the mortgage is completed on 18th June then the first monthly mortgage payment will become due on 1st August. That monthly payment will, however, include one months' interest from 1st July - 1st August and also 13 days interest from 18th June - 30th June which represents the initial interest.

maveli

Thanks Sooler and Mick

maveli

I thought I don't have to pay this if the mortgage start on the first day of the month. But here is what I got from Nationwide.

These payments are based on a mortgage of £120,000 and assume that the mortgage
will start on 01 February 2008
Interest charged in the month of advance, payable with your first full monthly payment £572.80
276 payments at a variable rate, currently 5.84% £791.18

* Interest in the month of advance is payable with your first full monthly payment

I cant' understand why I am paying an extra £572.80. Could anyone pls help

dunstonh

You pay for mortgages in advance. So, the first payment has to cover the days backwards from when the money was advanced and the month ahead.

If you start your mortgage on the first, then the first payment could be virtually double as the first payment is a month later and that has to be or the month ahead as well as the month behind. Going for a date towards the end of the month is often a better bet. However, it does depend on the lender as they have different cut offs and some may collect the back payment earlier.

Sooler

What was your completion date?


You’re bound to pay some initial interest, could be 1 day or upto 31 days, complete as late in the month as possible to minimise it.


Many years ago I was informed it was traditional for completion to be the last Friday of the month, as people then have the weekend to move and intitial interest will be minimum allowing a few days for any last minutes hitches.


Complete on 25th Jan – initial interest 25th to 31st, February start of mortgage - You’ll pay your first mortgage payment + 7 days initial interest

Complete 1st Jan – initial interest 1st to 31st, February start of mortgage – You’ll pay your first mortgage payment + 31 days initial interest



You mortgage starts the first day of the month after completion.

£572.80 is the initial interest for however many days you have had the money in January – from completion date to the end of January.

The completion date is when the Nationwide has paid out the money to buy your property.


You borrow the money from the completion date – you start paying it back from the first mortgage payment. Meanwhile interest is payable for the period between completion date and the first mortgage payment.

maveli

Completion date is 31st Jan and according to the document from nationwide they will start the mortgage from 01st Feb

Why can't Nationwide keep the money and pay it to my current provider on 31st so that i don't have to pay any interest ?

Sooler

Best ask them how they arrived at the £572.80 figure, can you go into a branch to save the hastle of waiting on the phone

dunstonh

Why can't Nationwide keep the money and pay it to my current provider on 31st so that i don't have to pay any interest ?

They are following instructions you or your solicitor have given them.

Dan_Collins_2

This one has been flogged a bit now but hey, you pay your mortgage payment in advance and never in arears. So if you completed on the 1st of Feb and your first full monthly payment was the 1st of Mar you have not paid for feb as the 2st payment will cover Mar. The lender will only charge you the interest but they will charge it from the 1st of feb, if they dont you go in to 1 months arears beore you stsrt.