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First mortgage payment - why so high?

steviebwoy

Well-known Member
Hi all,

I wasn't really sure where to put this thread, and am only a member of AV Forums, so thought I'd ask you kind folk if you could help.

My girlfriend and I are buying a house, we've exchanged today and it's all going through through Nationwide. Our monthly mortgage payment was quoted to us as £816.44 (ouch).

We're due to complete on the 2nd of August, and we were just checking through our Mortgage Offer and noticed that our first month's mortgage payment is a whopping £1531.21! :eek::rolleyes::eek:

When we signed up, I do remember the chap at Nationwide saying that our first payment would be high as we'd be paying interest on the advance from the time it was advanced until our first payment date. I think I would have listened a lot more intently had I have known it would be £700-odd we'd be forking out!

My question is simply (and I know I could wait until the morning to ask Nationwide myself - I'm just trying to avoid a sleepless night!), does this mean that we basically won't be paying anything in August but that in September's payment we'll essentially be paying for two months? Hence the outrageously high amount..?

Thanks in advance for any help :smashin:
 

liveforav

Well-known Member
Did you choose to pay all your fees seperate to your mortgage as that would explain most of it, the remainder being the extra interest?

Most mortgages have the option of adding fees to the loan amount meaning its spread over the full term
 

craig1912

Banned
Taken fron am another forum but I think it explains the situation:
A Yes, it is. You make your mortgage repayments in advance, for the incoming month. But you start paying interest on your mortgage from the date the lender releases the funds, usually the day before you complete your house purchase.

Your first mortgage payment may not be due for several weeks, depending on the date you move in and your regular repayment date, but you still have to pay interest from the date funds are released.

In your case, your first payment wasn't due until a month after you had completed, so you owed the lender interest for the month that had elapsed, plus your regular capital and interest payment for the incoming month.
 

rousetafarian

Moderator
Interest is calculated daily therefore you will have to pay the interest on the ammount of days between completion and your first payment, which may be up to 2 months or near as damn it i.e Complete at on the 1st of July and choose he end of August as your recurring payment date
 

steviebwoy

Well-known Member
So am I right in thinking that our first payment due on the 1st of September (say) will be;

£1532.21 - made up of the interest between when we move in and 1st of September

Then, on the 1st of October we'll be paying our regular payment of £816.44?

So, basically, we won't be paying anyone in August (essentially), but then in September we'll be paying for August and September in one go?
 

liveforav

Well-known Member
Is that an english thing as the funds for my mortgage were releasd at almost the same day i got the keys, where as the missives were signed months before?
 

Phil57

Well-known Member
Are you sure that the payment of £1531.21 is due on the 2nd of August? and not the 2nd of September?
 

Liquid101

Distinguished Member
So am I right in thinking that our first payment due on the 1st of September (say) will be;

£1532.21 - made up of the interest between when we move in and 1st of September

Then, on the 1st of October we'll be paying our regular payment of £816.44?

So, basically, we won't be paying anyone in August (essentially), but then in September we'll be paying for August and September in one go?

That sounds right to me.

You're completing on the 2nd August, so you're missing your first payment. This will hit you on the 1st September with the regular September payment, then level out for October onwards.
 

mikelj

Well-known Member
So am I right in thinking that our first payment due on the 1st of September (say) will be;

£1532.21 - made up of the interest between when we move in and 1st of September

Then, on the 1st of October we'll be paying our regular payment of £816.44?

So, basically, we won't be paying anyone in August (essentially), but then in September we'll be paying for August and September in one go?

From memory (I'm with Nationwide) that sounds about right, but best to check.

Incidentally, it's not the interest you're being charged, it's (nearly) two months mortgage payment; August's (minus the one day) plus September's payment. The difference between £816.44 x 2 and £1532.21 is due to not quite being charged for two months.
 

OldSwitcheroo

Well-known Member
So, basically, we won't be paying anyone in August (essentially), but then in September we'll be paying for August and September in one go?

Yep, pretty much it. Your completion date is 2nd August (a day after what would have been the usual mortgage payment date) You have essentially missed the August payment so it's effectively rolled over. If your completion date was 15th August, you would be paying between 1000-1200 approx on 1st September.

So what I've always done (having moved a few times) is just put the money aside (from July's wages I assume) as if you're already paying the mortgage anyway and then when added to August salary, that pays off the bill due in September.

Not sure if that makes sense.... :D
 

steviebwoy

Well-known Member
That's great, thanks loads chaps - you have saved Mrs Steviebwoy and I a sleepless night. Like you advise, I'll give them a ring to be sure tomorrow :smashin:
 

imightbewrong

Distinguished Member
Incidentally, it's not the interest you're being charged, it's (nearly) two months mortgage payment;

The first payments are pretty much all interest though :)

I don't totally follow the above - you don't pay interest in advance, do you? I would have expected a bill for one month's interest at the *end* of month one, not the start of it. Otherwise it's a bit like going to the bank and borrowing £10, then they say 'right, now for the first payment' and you give them £1 back before you leave.

Anyway, IMBW and all that :)
 

mikelj

Well-known Member
The first payments are pretty much all interest though :)

I don't totally follow the above - you don't pay interest in advance, do you? I would have expected a bill for one month's interest at the *end* of month one, not the start of it. Otherwise it's a bit like going to the bank and borrowing £10, then they say 'right, now for the first payment' and you give them £1 back before you leave.

Anyway, IMBW and all that :)

The first several years are all pretty much interest:).

It's not paying interest in advance. For example, if you take a £100000 replayment mortgage for 25 years, that's 300 monthly installments in order to repay £100000 plus whatever the interest is (ok, not quite that straight forward as interest is calculated on a daily bases, but you get the idea). The OP's simply making (nearly) the first two months payments in one go.
 

mikelj

Well-known Member
yes it is - this must be a payment-in-advance mortgage. if it was payment-in-arrears (which I thought most were) then the first payment would be less than normal, not more.

I've never come across a payment-in-arrears mortgage yet. How would that work, since in theory you would be required to make an additional payment after the redemption date; or the final payment would have to be a double payment.

Edit: Plus the interest you owe on the arrears would be charged over the entire period of your mortage.

Edit: Edit : Actually, thinking about it, surely there's no payment in advance/arrears for mortgages. You make a payment each month, it doesn't matter when (I used to pay my current mortgage around the middle of each month, now I pay it on the first of each month - but I could just as easily changed my payments to the end of the month without affecting the number of payments I must make or the amount of each payment).
 
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imightbewrong

Distinguished Member
Payment in advance makes no sense to me - you would just be giving money straight back on day 1 - why borrow it?

In payment in arrears, your final payment is the last capital, plus the interest for the month up to that point. In payment in advance, your last payment would be just capital, as you had already paid the interest the month before.

Think about it - if you borrow money from a loan shark, they come back one week later for the interest for that period plus the payment :) They don't charge interest in advance.
 

Trollslayer

Distinguished Member
Mine was like that, first payment was high because it included payment for the time before they paymen and the month after.
 

mikelj

Well-known Member
I still don't believe there's any payment in advance or arrears. I think it might appear that way depending whether your payments are made at the start or the end of the month; it's irrelevant really it's just the payment for that month.

However, I was incorrect in my initial assumption. The OP's first payment consists of the interest on his loan from when the funds are released up to his usual payment date, plus his usual replayment amount, as stated in post#3 (apologies).
 

kevandalice

Active Member
OP, are you sure your first payment date is not 1st October? That would make much more sense.

If it is 1st september, you should query the payment amount. Banks do sometimes make mistakes.
 

imightbewrong

Distinguished Member
I still don't believe there's any payment in advance or arrears.

Unless you are making a payment every day, you will always be paying for interest you have either acrued in the past, or will acrue in the future.

Say you borrow £1000 for a month at 12% interest pa. At the end of the month you pay £100 interest, plus £1000 to clear the balance. That is payment in arrears.

Anyway, it doesn't really matter - the OP is clearly on payment-in-advance - bad though banks are they are pretty good at getting these calculations right - most of the time :)
 
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