Daily Interest: Better to pay on the 1st or doesn't it matter?


I've just signed up for a Mortgage with the yorkshire BS, who calculate their interest daily. I was planning to pay my mortgage on the 20th of each month (as this is the day I get paid). When I went to into branch to sign for the mortgage, the lady advised me that it's better to pay on the 1st of each month - because if I pay on the 20th, I will be paying an extra 19 days worth of interest every month, which could equate to as much as £5000 extra over a 25 year term! (my mortgage is £130,000)

I didn't question this until I got home and thought about it...

Wouldn't the amount of interest that accumulates between each monthly payment be the same, regardless of whether the payment is taken on the 1st of each month, or the 20th of each month? (i.e. 28-31 days worth of intererest would accumulate between each month's payment, no matter what the payment date is)

The only way I can see it making a difference is for the very first payment, if they start calculating interest from the 1st, and you don't make your first payment until the 20th, THEN I can see how you would accumulate 19 days worth of extra interest for that first month. But then after that, the only extra interest I would think you would pay would be interest on the 19 days worth of interest you accumulated in that first month (which wouldn't be that significant)

Sorry if this is confusing! Thanks to anyone who can help :)



  • getmore4lessgetmore4less Forumite
    45.4K Posts
    Part of the Furniture 10,000 Posts Name Dropper I've helped Parliament
    If they do it properly you pay as soon as you have the money

    Don't make it exactly pay day just in case it is late one month, give yourself 2-3 days and have a backup plan.

    The most you can ever save by moving payment day is the same as if you made one months overpayment.

    £130k over 25y at 5% is £760pm

    So over 25 years £1872 interest is saved by making one extra payment now

    £5k they are talking rubbish
  • edited 31 October 2011 at 4:38PM
    dontrundontrun Forumite
    10 Posts
    edited 31 October 2011 at 4:38PM
    Thanks for that.

    I may set it for the 22nd then, just in case they ever take payment early! (are they allowed to do this?) ...I'm not too worried about getting paid late as my wages always go in on or before the 20th.
  • They are not allowed to take a payment early :-)
    Mini Challenge - Halve 2nd Mortgage by Year End
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  • financialblissfinancialbliss Forumite
    1.9K Posts
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    I'm with Nationwide, who do daily interest.

    My mortgage is collected on the first of the month and when I was making overpayments directly to the mortgage, I also made them on the first of the month - pay as soon as you can.

    Can now get a better rate on savings, so I'm overpaying there, also on the first of the month too.

    If you're not on daily interest, this may not be your best option. Best to check with your lender.

    Mortgage and debt free. Building up savings...
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