Money Grouse: Pay-in-advance shock for a mortgage borrower

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The Independent Online
WHEN Mike Wilde chose the first of the month as his mortgage repayment date he did not realise that he would be paying for a debt he had not yet incurred.

Mr Wilde, a buyer for a rubber and tyre firm, has just taken out a pounds 50,000 interest-only mortgage on a house in Grimsby. His payments, which began in mid-April, are pounds 256 a month.

Yet, to his surprise, on the first agreed payment date, 1 May, Halifax took pounds 410 from his account. This included pounds 153 initial interest to cover 15 April to 1 May, plus interest for the month ahead.

Mr Wilde is baffled by this practice. 'I feel that the first full monthly payment should not have been deducted until June 1, after a month's interest had accrued,' he says. 'Otherwise, they are deducting interest in advance.

'This is the same as asking me to pay a bill for something I have not yet incurred. Is this fair?'

Halifax defended its policy, saying: 'Borrowers have a choice of any time in the next month when they pay the interest. We do not object if they choose to pay at the end of the month.'

However, having chosen his repayment date as the first of the month, Mr Wilde positioned himself to pay in advance.

Other mortgage lenders appear to operate in the same way. Both Nationwide and Abbey National said they expected borrowers to make a payment the calendar month after a mortgage was taken out, although they leave the choice of date to borrowers.

All three lenders advised borrowers to make the first month's mortgage payment as small as they could by completing a house purchase as close as possible to the end of the month.

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