When reviewing your mortgage illustration or mortgage offer, you may notice that the first month’s payment is higher than the usual monthly amount. This isn’t because lenders charge extra in the first month-it’s simply because you may be paying for more than one full month.

Mortgage offers are often based on an assumed start date, as completion hasn’t yet occurred when the document is prepared. The first payment may include interest for the remaining days of the month in which you complete, in addition to your full mortgage payment for the following month.

Once your mortgage completes, your lender will send a welcome letter confirming the exact details of your first payment. This is usually calculated as follows:

1. Pro-rated interest for the month of completion – If your mortgage completes in the middle of the month, you’ll be charged interest from the day the lender releases the funds until the end of that month.
2. Your full mortgage payment for the following month – This is the standard monthly payment that will continue from the second month onward.

Since this calculation is based on the actual completion date, the amount may differ from what was originally illustrated in your mortgage offer. However, from the second month onward, payments will be regularized, and you’ll only pay for one full calendar month at a time.

It’s also important to note that the date of your first mortgage payment may differ from the direct debit date you initially selected. This will also be regularized from the second month onwards.

Since each lender has its own procedure for calculating the first mortgage payment, it’s difficult to ensure that it aligns exactly with a full month’s charge. However, as a soon-to-be homeowner, here are some key steps you can take:

• Ensure sufficient funds – Keep extra funds in your designated bank account to cover any variations in the first payment.
• Monitor your payment date and amount – Keep an eye on communication from your lender regarding the exact amount and date of your first payment.
• Double-check direct debit details – At Nachu Finance, we always advise our clients to verify their direct debit setup to avoid any administrative errors that could cause payment issues.

Let’s consider an example to bring this to life:
Shankar & Maya complete the purchase of their first home on Friday, 7th March. Their mortgage lender, Halifax, releases the funds on 6th March.

• Their regular monthly mortgage payment for the initial fixed period of two years is £1,354.35, with an interest rate of 4.25%.
• They’ve chosen the 5th of each month as their preferred direct debit date.

What Happens Next?
On 5th April, Halifax is likely to take the following payment:
• Interest-only payment for 25 days (6th March – 31st March) at 4.25% = £714.04
• Full mortgage payment for April = £1,354.35
• Total first payment: £2,068.39 (taken on 5th April)
From 5th May onwards, the monthly payment will settle at £1,354.35, as expected.

A Slightly Different Scenario
If Halifax had released the funds on 29th March instead, there wouldn’t be enough time to collect the first direct debit on 5th April. Instead, Halifax would notify Shankar & Maya that their first payment would be collected on 10th April.
In this case, the first payment would be slightly higher than usual, but not significantly-since only two extra days (30th–31st March) of interest would be added, amounting to an additional £57.12 on top of their regular payment.