Debit interest confusion

[geowest]

Hi. I'm on a 3 year 1.74% fixed mortgage at £408 a month.
I moved into the property on 22 May and was charged my first payment on 1 July of £476 and also £250 in debit interest.

Can someone explain the reason for this? I get that they start charging you initial interest the day you move in and this would have been from the 21 May until 1 July.

I thought the £408 monthly payment covered capital and interest? If that is the case will I have to pay extra interest on top for the proceeding months or would it be only £408?

its impossible to do any calculations without also knowing the whole term (25 years? 30 years? and the amount you are borrowing)

I seem to recall the first payment can be larger if you move in part way through a month, but it will also vary by lender so maybe call customer services?

I imagine your 1st July paymemt covers 22 May - 1st June as well as 2nd June - 1st July, ie more than a whole month.

I'd expect your 1st August repayment to be your normal monthly repayment.

You should definitely be paying the agreed amount 408 per month.
I'm confused by the first payment though - seems a bit much for the number of extra days. Unless the bank transferred the money before your moving day for some reason? Also if they have split the initial payment into capital and interest I'd expect the first payment to be mostly interest and less capital, unless a very short term mortgage.
Could there be any mortgage arrangement fees in the first payment?

@YinuCeatleAyru

its impossible to do any calculations without also knowing the whole term (25 years? 30 years? and the amount you are borrowing)

I seem to recall the first payment can be larger if you move in part way through a month, but it will also vary by lender so maybe call customer services?

Hi there, apologies this is at 35 years, and going back to a standard variable at the end of the 3 year fixed term at approx 3.3%.

Hang on, is the 250 something you actually paid at all?
When we get a mortgage statement, the amount of interest added to the debt is shown - offset by the payment amount so that it can show the amount if debt remaining. Your payments are calculated so that over the full term of the mortgage (15 years say) the payments will cover the total initial amount borrowed owed plus interest charged.

I think what they are telling you is that you paid 476 (one month's payment plus a few extra days) of which 250 went towards interest on the loan and the remainder paid off some of the capital.

Am I right?

@thirdfiddle

You should definitely be paying the agreed amount 408 per month. I'm confused by the first payment though - seems a bit much for the number of extra days. Unless the bank transferred the money before your moving day for some reason? Also if they have split the initial payment into capital and interest I'd expect the first payment to be mostly interest and less capital, unless a very short term mortgage. Could there be any mortgage arrangement fees in the first payment?

Hi, the drawdown of the mortgage was set up on 21 May and I completed on 22 May. I do agree the £250 is quite large.

Fees - electronic transfer fee £17 - paid
Conveyancing fee £295 - assumed this was passed onto solicitor so I should have paid
Broker fee £495 - paid

@thirdfiddle

Hang on, is the 250 something you actually paid at all? When we get a mortgage statement, the amount of interest added to the debt is shown - offset by the payment amount so that it can show the amount if debt remaining. Your payments are calculated so that over the full term of the mortgage (15 years say) the payments will cover the total initial amount borrowed owed plus interest charged.

I think what they are telling you is that you paid 476 (one month's payment plus a few extra days) of which 250 went towards interest on the loan and the remainder paid off some of the capital.

Am I right?

On 1 July my statement came out as

476 as mortgage payment
250 as debit interest

I also put £500 into overpayment on the 3 June

What direct debit was taken from your bank?

A mortgage statement usually looks something like

Outstanding at start of month 100,000
plus interest 250
less payment -500
Outstanding at end of month 99,750

where the amount you pay to them is 500.

@thirdfiddle

A mortgage statement usually looks something like

Outstanding at start of month 100,000
plus interest 250
less payment -500
Outstanding at end of month 99,750

where the amount you pay to them is 500.

Ok, would you say that the £250 is therefore a way of 'illustrating' the interest the bank can receive from the monthly payments?

On 1 August. I presume I will pay £408 and there will be a statement stating debit interest increasing the balance?

Your mortgage documents should tell you what the breakdown of your monthly repayment is. If you're on a capital repayment deal then each monthly payment will have a capital and interest element.

Yes I think that's right.

The annual interest rate 1.74%, translated to a monthly rate, is how much they're charging you to lend you the money. Per £ still owed. At the beginning of the deal you owe them lots of £ and so it costs you lots of interest. When you've paid off most of the loan there's much less interest charged. Because people don't want to make bigger payments at the start, they adjust for this by paying off the capital amount slower af the start and faster at the end, so that your payment stays the same each month.

At any stage the amount you still owe is
Initial Loan

• Interest charged to date

• Payments made to date.

That is the amount they then calculate the next interest charge on, and the amount you'd have to pay them (up to any exit fees) if you wanted to pay off your mortgage with a lump sum.

Your payment will always be bigger than the interest charge so the total outstanding debt goes down every month. And yes you will pay 408.