Why is My First Mortgage Payment Higher Than Expected?

If you have just embarked on your mortgage journey you may be disappointed when your first mortgage payment is higher than expected. It is common for brokers to encounter the question ‘why is my first mortgage payment higher than expected?’

The reason your initial mortgage payment is higher than subsequent payments is for technical reasons – specifically because your mortgage starts at completion and in some cases your direct debit may not start immediately. We will outline these reasons in more detail and explain what to do if your first mortgage payment is higher than expected.

Let’s discover more about your first mortgage payment.

How to Calculate the First Mortgage Payment?

Before entering into a mortgage, you should be aware of the expected monthly cost, even if you are on a variable deal like a tracker rate mortgage.

Mortgage paperwork supplied by a lender will clearly outline your expected monthly mortgage payments. Therefore, 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 because you may believe that something has gone wrong with your mortgage. To calculate your first mortgage payment, you should factor in the following:

• Your completion date
• Your requested direct debit date
• If 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?

Lenders will commence the new mortgage product and start your product term from the time of completion.

This means that once the purchase or remortgage completes, your mortgage becomes payable. In some cases, you may request a direct debit date that means your first mortgage payment covers a period of longer than a month.

When a lender sets up a direct debit it can take up to 2 weeks for the payment to be authorised by your bank or building society. Your completion date may fall at an inopportune moment and could mean it is up to 6 weeks before your first payment is taken.

For example, if you have a completion date falling on the 16th of the month and have requested the direct debit be taken on the 28th of the month, it will be 6 weeks before the lender takes your first mortgage payment.

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, if your current deal expires on the 1st of a month, and your first payment is due on the 1st, this could result in a variable rate mortgage payment being taken because your mortgage lender will have already scheduled to take that payment.

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, which could also result in a variable rate payment being taken if your payment is due within that time. These variable payments can typically be refunded. However, scheduling your first payment for the middle of the month (and ensuring that it is not on a bank holiday or weekend), should reduce your chances of a variable rate payment being taken.

What is the Standard Variable Rate?

Most mortgage deals have interest rates far below a lender’s Standard Variable Rate. The SVR is an interest rate set by the lender. It is not designed to be competitive and it is typically far higher than interested rates offered on mortgage products.

This can mean a significant difference in your first mortgage payment if a portion of it is covered by a Standard Variable Rate. Lenders must outline if they are charging a Standard Variable Rate and under what conditions that rate is charged.

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 Mortgage Payment?

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 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.