Why Is My First Mortgage Payment Higher Than Expected?

If you’re new to mortgages, you may be surprised to learn that your first mortgage payment might be higher than expected.

At Boon Brokers, one of the most common questions we hear is: “Why is my first mortgage payment higher than expected?”

The main reason why your initial mortgage payment might be higher than subsequent payments is because your mortgage payments will begin on the day you officially become the owner of the property. Whereas, your direct debit setup might begin at a later date.

In this article, we explore all the reasons behind a higher first mortgage payment and exactly how you can manage it. Let’s begin.

How to Calculate the First Mortgage Payment?

Before entering into a mortgage, it’s important to understand the expected monthly costs – even if you are on a variable mortgage product, like a tracker rate mortgage.

Lender’s will provide you with documentation that will clearly outline the specifics about your mortgage product and expected mortgage repayments. As such, it can be alarming when your first mortgage payment comes in higher than the figure declared in your illustration document.

In fact, for many, this higher payment can cause panic as it can lead to the belief that there’s been an error either in the paperwork or calculations of your mortgage agreement.

But don’t worry. In order to calculate your first mortgage payment accurate, you should consider the following factors:

• The completion date of your mortgage
• Your requested direct debit date
• Whether the lender applies a Standard Variable Rate for the first month (in the case of a remortgage)

Why Is My First Mortgage Payment so High?

Typically, lenders will start your mortgage term from the time of completion. This means, on the day you are officially the owner of the property, or your remortgage is complete, your mortgage becomes payable .

Due to the fact that setting up a direct debit can take up to 2 weeks – for authorisation by your bank of building society – it is common for borrowers to request a direct debit date that extends your first mortgage payment period beyond a month. If your completion date falls at an inconvenient time, it may take up to six weeks until your first mortgage payment is taken.

For example:

• Your mortgage completes on the 16th July
  This is when you legally take ownership of the property and the mortgage interest begins to accrue.
• You’ve requested your direct debit to be taken on the 28th of each month
  Lenders usually need up to two weeks to set up a new direct debit instruction.
• The 28th July is too soon for the direct debit to be activated
  So instead, the lender defers the payment to the next available date — 28th August.
• The result: your first payment covers a longer period (six weeks)
  This extended coverage makes your first mortgage payment noticeably higher than a standard monthly repayment.

Can Lenders Delay the Start of My Mortgage Deal?

In rarer circumstances lenders may delay the start of your mortgage deal and operate a Standard Variable Rate (SVR) until a month before your payment is due.

When remortgaging, your scheduled payment date can impact whether a partial variable payment would be taken from the lender. For example:

• Your current mortgage deal ends on the 1st of the month

This is when your old fixed or tracker rate agreement expires, and you’re due to move onto a new deal (e.g. a new fixed rate).

• Your first scheduled payment on the new deal is also set for the 1st

But here’s the catch — lenders typically schedule and process direct debits in advance, often based on your previous agreement.

• The result

Since the switch to your new deal hasn’t technically happened by the payment cut-off date, the lender may collect that month’s payment under their Standard Variable Rate (SVR) — essentially a holdover from your previous arrangement.

Similarly, if your fixed rate expiry date happens to be a non-working day (like a weekend or bank holiday) you cannot complete on your remortgage until the next working day. This delay could lead to a payment being taken at the lender’s SVR if your direct debit is scheduled during that gap.

These variable payments can typically be refunded. However, it is best practice to try and schedule your first payment for the middle of the month, taking care that the dates do not fall on either a bank holiday or weekend. This should reduce your chances of a variable rate payment being taken.

Should I Cancel My Mortgage Direct Debit if First Payment is High?

No, definitely not. Cancelling a mortgage direct debit will send alarm bells to your lender and they may contact you to find out:

• Why you cancelled the direct debit
• If the mortgage is unaffordable
• Apply fees or penalties if subsequent payments are late or you default on the mortgage

Regardless of the reason behind it, missing a mortgage payment will result in a late payment or default on your credit file which will impact future mortgage applications.

Ultimately, cancelling a mortgage direct debit and failing to keep up on mortgage payments can lead to repossession so you should always keep your direct debit in place.

If you are genuinely having difficulties because of the first high payment, keep the direct debit in place and call your mortgage lender to discuss the situation with them. They will be more amenable to you being pro-active than if they have to chase you for mortgage payments.

If you have been falsely charged a variable mortgage payment, the lender will refund it. If you contact the lender, they will be able to advise further.

Can I Delay My First Monthly Mortgage Payments?

Yes, to some extent you can delay your first mortgage payment by setting the direct debit schedule in a way that allows you the most time between completion and the payment being taken.

However, as outlined above, many of the higher first payment problems occur because of such a delay. If the lender is charging a Standard Variable Rate, it is always beneficial to get the mortgage payment made as soon as possible after completion.

If you realise after reading your mortgage paperwork that your mortgage payment will be much higher than expected and you envision a problem, you should contact the lender. You will not be able to delay your first payment outside of consent from your lender and simply opting to make a late payment will cost you. This cost will not just be in potential fees and it also in the adverse credit that will apply to your credit file.

How Can I Understand My Mortgage Payments Better?

Mortgage lenders will typically write to you 2-3 weeks after completion to confirm your mortgage payments.

After your initial payment, your mortgage should follow the payment schedule as outlined by your mortgage illustration.

If the schedule differs to the amount you are being charged each month you should contact your lender and raise the issue.

Remember that variable interest rate products like tracker rates are subject to change and your anticipated payments may not be accurately reflected in your paperwork.

However, fixed rates should always match your mortgage documentation and if there is a disparity between the documentation and your actual payments there is most likely an administrative error with your lender.

Your lender will be able to rectify problems and explain some of the more intricate details of your mortgage payment. Ultimately, speaking to your lender should allow you to budget correctly for your mortgage going forward.

Speak to a Mortgage Specialist

Every lender operates different rules regarding your initial payment, and you should speak to your mortgage broker if you are concerned about payments or need more information.

Boon Brokers is a Whole of Market Mortgage, Insurance and Equity Release Brokerage. Boon Brokers offers fee free mortgage advice.

Contact us to discuss your mortgage today.