WHY IS MY FIRST MORTGAGE PAYMENT HIGHER THAN EXPECTED?
It is one of the most common questions we get asked, and it catches a lot of people off guard. You’ve just completed on your new home and the excitement is real. As your mortgage broker, we’ll always make sure you know what to expect before completion day, including any potential increase in your payment. However, this is still one of the most common questions we’re asked, so here’s a clear explanation of what’s included and why.
YOUR MORTGAGE STARTS ON THE DAY YOU GET THE KEYS
From the moment your mortgage completes, interest begins to accrue. Not from the start of the following month, not from a convenient round date, but from the actual day you receive the keys to your property.
This means that between your completion date and the end of that calendar month, your lender is calculating what is known as daily interest. You are only being charged for the days you actually own the property, which is fair. It is just that this amount lands alongside your first full monthly payment, which is why the figure looks higher than you were expecting.
WHAT DOES A FIRST MORTGAGE PAYMENT ACTUALLY INCLUDE?
Your first payment is typically made up of two things:
Daily interest: interest charged from your completion date to the end of that month. If you complete on the 20th, that is roughly 10 or 11 days of daily interest added on top of your first full payment.
First full monthly payment: your standard monthly mortgage payment for the first full month, collected at the same time.
So your first payment equals the daily interest for the remainder of the completion month, plus your first full monthly instalment. That is why it looks bigger.
WHY DOES THE FIGURE ON YOUR MORTGAGE ILLUSTRATION LOOK DIFFERENT?
When your lender issues a mortgage offer or illustration, they have to use an assumed start date for the calculation. At that point, they have no way of knowing exactly when you will complete. They are required to provide example figures, so they pick a date and work from there.
Your actual completion date will almost certainly be different, which is why the first payment rarely matches the illustration exactly. This is not an error, and it is not the lender overcharging you. It is simply the nature of how mortgages are drawn down in practice versus how they are illustrated in advance.
DOES COMPLETING EARLIER OR LATER IN THE MONTH MAKE A DIFFERENCE?
Yes, it does, and it is worth understanding how.
If you complete towards the end of the month, there are fewer days of daily interest to add on, so your first payment will be closer to a standard monthly amount. Completing in the last week of the month tends to make the initial outlay the lightest.
If you complete earlier in the month, the daily interest portion will be larger, so your first payment will be noticeably higher. This is not a problem, it just means setting a little extra aside beforehand.
That said, we would never recommend forcing a completion date just to reduce this initial amount. The extra cost is rarely significant enough to justify the stress of rushing or delaying a move. Your completion date should be driven by what works for your purchase, not by the mortgage calendar.
WHAT TO EXPECT FROM YOUR LENDER
Your lender will write to you before your first payment is collected, confirming the exact amount and the date it will be taken. Lenders normally need to provide 10 days notice as part of the Direct debit guarantee. Depending on when you complete and how close that falls to the lender’s collection date, your first payment could come out sooner than you might expect, so it is worth keeping a little extra in your account in that first month. If anything looks unfamiliar, contact your lender before the payment runs and they will walk you through the breakdown.
One important point: do not cancel your direct debit because the amount looks unfamiliar. The payment is correct. If you are unsure, contact your lender directly and they will be able to break down exactly what you are paying and why.
IN SHORT
- Your first mortgage payment is higher because it includes daily interest from your completion date to the end of that month, plus your first full monthly payment
- Completing later in the month reduces the daily interest portion, but it is not worth forcing a date to achieve this.
- Your lender will write to you before the first payment is taken, confirming the exact amount and date.
- Do not cancel your direct debit. If you have concerns, speak to your lender or your broker.
—————————
If you need independent mortgage advice, book a video call, give us a ring, or pop into our office in Dunblane or Glasgow for a chat over a coffee. We have been helping clients across Scotland and the UK with their mortgages since 2001, and we genuinely love what we do.
Email us below or book a meeting via the link above.
—————————
IMPORTANT INFORMATION
Your home may be repossessed if you do not keep up repayments on your mortgage. Mortgage Advice Brokerage is authorised and regulated by the Financial Conduct Authority (FCA: 479200). The information contained in this article is for guidance purposes only and does not constitute advice. Your individual circumstances will affect which mortgage products are available to you.
