fbpx

Some homeowners stung by annual interest mortgages

Recent research conducted by Dr Alla Koblyakova of Nottingham Trent University demonstrates that a large number of property owners have a mortgage where interest is calculated annually rather than daily. According to the expert, this could be costing borrowers far more than necessary.

The study has been shared with This is Money, and reveals that many of the borrowers are unaware, as the amounts involved may seem small when viewed in the short term. However, this method of calculating interest can cost a homeowner thousands over the term of a mortgage. Most modern day lenders don’t calculate interest using this method, using the daily calculation instead. Among those that still use the annual method are Harpenden Building Society, Bath Building Society and First Trust Bank (Northern Ireland).

If a borrower has a repayment mortgage, a monthly payment is made which reduces the capital and interest. The interest may be calculated either annually, daily, quarterly or monthly. Although most lenders used to calculate interest annually, calculation using the daily method became the preferred method from the year 2000. The Financial Services Authority also approved of the daily method. If a lender calculates the interest annually, it doesn’t take into account the payments made during the year, which reduce the amount owed. Calculating interest on a daily basis means that as the debt is reduced, so is the amount of interest charged.

Most people don’t realise that the interest can be charged using various calculation methods. A mortgage adviser has been trained in a CeMAP course to understand the calculation methods and which are most suitable for borrowers.

Share:

Facebook
Twitter
Pinterest
LinkedIn
Related

Related Posts

CeMAP Course Online pop up
Update cookies preferences