An annoying (but ironically welcome) little mortgage interest irritation...

When I remortgaged a couple of months back I got an unexpected and unwanted mortgage holiday for a month.

This was due to nothing other than standard practice in the mortgage industry.

I deliberately delayed my completion date on the new mortgage until early October as there were early repayment charges on the old one until that point. The mortgage got transferred very early on, around October the 4th, with my new repayment going out on the 5th, the same date as my old one. (I'm very organised about these things!).

I had expected the first repayment to go out on 5th November, but NO, it didn't happen! My first payment didn't go out until 5th December, so I got a mortgage holiday.

I didn't actually realise this is standard practice...it's because the interest is paid in arrears on the outstanding capital, with the capital being paid off in advance.

So what happens is that when you remortgage you end up paying MORE interest for the rest of the days in the month when the mortgage completed.

So that means I paid 55 days interest on the LARGEST amount of capital, rather than just the 25 days I had expected.

This can hypothetically cost you a fair chunk of money...

For example on a £50K mortgage...

At 5% annual interest....

= £2500 a year or £6.85 a day.
= £376.71 over 55 days.

Compared to....

= £245 in interest over 30 days.

£50K - £355 (assuming £600/ month payback, £600 - interest = capital reduction = £355).

= £49645 times 5% APR/ 30 days = £204.

So that's roughly £40 that 'standard policy' has cost me because I'm paying the 5% APR for twice as long (nearly) as I would have ordinarily been.

Small differences times the UK population with mortgages...

It's estimated that 14 million people have mortgages in the UK.

Let's assume people remortgage every 5 years, that means 2.75 million remortgages a year.

Times £40 = £110 000 000 a year the mortgage industry extracts out UK consumers...

It's outrageous but...

Actually that mortgage holiday was quite welcome this year, so there you go!

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