On a trick that potentially can save you money on this month’s mortgage payment

Hobbes, I really have to share it with you. The most strange thing happened today. A one off, or something that will catch me up later on in the year. We’ll see.

Let me explain you. I’ve got a Buy to Let mortgage with Birmingham Midshires (BM, part of the ailing HBOS family) for a 2-bed flat in SE London, a fantastic estate agent (yes, they do exist), a considerate couple with a baby as tenants and a habit for forgetting to pay in the mortgage moneys the day the direct debit arrives.

Well, he who procrastinates, will never accomplish anything… or pay through his/her nose. The fact is that last Thursday 13 November I didn’t have in my account enough money to pay the monthly £565.42 mortgage payment because I forgot paying the money in. Duh!

Knowing so, the first thing I did on Friday 14 was ringing BM up and paying by debit card. I learnt of the “usual” £35 charge for returned direct debits (which, by the way, they add to your outstanding mortgage balance, so be aware of this practice that will make you pay £2.54 for every £1 on a 25 year 6% interest-only mortgage or £89), took the hit and pay with my card what I thought, and was told, £565.42. I was assured that the payment for November was cleared and they would NOT send it back to my account for collection.

But guess what, and here comes the interesting part of the story, BMs charge arrived to my account this morning, and to my surprise it was for £513.71, £51.71 less than 2 working days ago. Knowing their take-no-prisoners style, I promptly contacted their payments department to double check whether:

  • There had been any mistake in the payment debit
  • Instead of November’s payment, they charged me December’s (including the last 1.5%  BoE base rate drop) and November’s one would still be outstanding.

Well, the lady on the other side of the phone line, reassured me that my account was NOT in arrears and that the November payment was made correctly last Friday 14, for £513.71. “Why would you drop £51.71 off my mortgage payment when you couldn’t get your money?” I asked her. All she could tell me was that my December payment, after taking into account the last rate drop, would be £513.71.

I know what you think, I wasn’t interested in my December payment, and when I pointed that out to her she informed me of the usual “the system doesn’t give me any more information… your account doesn’t have any arrears… it is all clear”.

The system… she couldn’t tell me why the drop in the amount, so I asked her if the payment that bounced back was pre-interest rate drop and the one I paid 12h after was post-interest rate drop. Still she couldn’t give me an answer.

In essence, that leaves me better off, actually £16.71 better off (£565.42-£513.71=£51.71-£35=£16.71). Is this a way of saving money? If there is a substantial interest rate drop (or your mortgage payment is big enough) and you are informed that the next month’s payment will reflect the interest drop, just let it bounce back to them, call them up the next day and it seems they’ll charge you at the lowered interest!

This morning I received a letter relating exactly to that. As of next month, and due to the Bank of England base rate change, “the Standard Variable Rate that applies to [my] mortgage has also changed from 6.940% to 5.440% a year” (I know, massive, I call this particular flat my property bubble craze). All in all, my mortgage payment for next week is £1,469.34 and it will drop to £1,060.47 (crazy drop, isn’t it? imagine when it goes up at that rate!)… should I try to play the same trick? After all the difference is £408.87 (£373.87 after the ubiquitous £35). The mortgage bank is from the same family and after restructuring a couple of months ago, they are now under BM’s wings. Should I take the risk?

Suffice to say, that the unexpected drop in the amount paid this month, didn’t leave me better off after all, since my bank charged me another £35 due to a “returned item fee”, so overall I ended up £18.29 worse off. Oh dear, you cannot bit the house. Or can you?

.calvin

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