How does the payment date affect the interest charged on my mortgage?
- Every day, interest is calculated based on the remaining balance on your mortgage.
- However, this is not added to the balance every day, instead the total months interest is added to the mortgage once a month on the interest charging date – this is the date your mortgage completed.
When your payment date is after the interest charging
- Until your payment is received, daily interest is calculated on a balance that now includes last months’ interest.
- Your monthly payment won’t change so more of your monthly payment is needed to repay interest, leaving less to repay any capital that month.
- However, events occur throughout your mortgage, such as rate changes, which will trigger an automatic recalculation of your payments, and capture any extra interest incurred to that point. If none of these events occur, you may be left with a balance at the end of mortgage term which means you will pay more overall throughout the life of the mortgage.
When your payment date is before or the same as the interest charging date
No additional interest will be charged, as your payment is received in time to pay off the previous months interest, which will be applied on the interest charging date, with any extra money received reducing the mortgage balance (“capital”).
