This Mortgage Payment Tip Could Save You Thousands

Most borrowers focus on how much they pay each month, but when you pay can also change the cost of your mortgage, as most lenders charge interest daily. As a mortgage broker I know all about this, so lets get to it! 

Let’s take an example:

Balance: £200,000

Interest rate: 4%

Term: 20 years

Type: Repayment, interest calculated daily

Paying on the 1st vs. the 28th-why earlier saves you money

Daily interest mortgages work exactly as they sound-interest is charged on your balance every single day.

If you make your monthly payment earlier, you reduce your balance sooner meaning fewer days where interest accrues on a higher amount. Even though your contractual payment might be the same each month, over time you pay less total interest. In this example £592 of extra interest is accrued on the mortgage before a payment is made.

Let’s breakdown how we get that figure:

£200,000×0.04/365=£21.92 per day

As 27 days between the 1^st and 28^th

27×£21.92=£591.84

Over years, those extra days of interest each month compound into tens, hundreds or even thousands in extra cost. By paying on the 1st, you start reducing your balance and therefore interest charged sooner, making your money work harder.

Direct Debit Secondary Attempts

Most lenders will give you the option to pay your mortgage by Direct Debit. If your first attempt fails, many lenders try again but secondary attempts are collected at a later date. If your regular due date is already late in the month and the payment fails, the secondary attempt might roll into the next calendar month. That can:

• Cause your payment to be reported as missed to credit reference agencies
• Potentially harm your credit score
• Lead to unwanted arrears or missed payment markers

If you make your due date earlier in the month, there’s more breathing room for a second attempt to still land in the same calendar month. If you have it later in the month, be proactive in ensuring your payments are going through as they should each month.

Due date breaks

Some lenders offer a due date break, essentially a one‑month payment holiday where you skip that month’s payment and resume the following month on a different due date. This can help facilitate a change from paying later in the month to the start of the month.

• You’re still charged daily interest during the break
• The skipped month’s payment is effectively added to your balance, so you may pay interest on it for the rest of the term
• Your overall cost of borrowing can rise

Due date breaks can be a short‑term breathing space for cash‑flow issues, but you should see them as a temporary fix, not a cost‑saving tool.

Key Takeaways

• When you pay matters and can save you interest
• Direct Debit timing can protect your credit as an earlier due date gives more room for a secondary collection attempt in the same month if the first fails
• Due date breaks can help accommodate due date change; however they have a cost