Lenders Continue To Calculate Annual Interest On Home Loans

Wed, 27 Feb 2008

One in five mortgage lenders still calculate interest on home loans annually instead of looking at borrowers’ balances on a daily basis, which has become the industry norm, according to mortgage analyst Mform.co.uk.

Investigations by the firm found that annual calculations could be leading to borrowers forking out £150 a year too much in interest on a £150,000 loan .

It highlighted Giraffe Money, Bristol and West, Leeds Building Society and West Bromwich Building Society among the lenders that still use annual calculations – blaming systems issues for not switching to daily calculations.

Francis Ghiloni, marketing and business development director for Mform.co.uk, said: "Lenders say they cannot move to daily calculations of interest because of systems issues but it is borrowers who have to pay ."

"However, 80 per cent per cent of lenders have managed to move to daily calculations and not all the lenders who still use annual calculations are small regional building societies who need to keep costs down," she added.

The mortgage analyst is now advising customers with these lenders to try and make overpayments on their loans, urging them to ask their lenders when the calculation is made and to time their overpayment to coincide with this.

Mform stressed by making an overpayment after the calculation, the borrower will not feel the benefits until the next annual calculation.
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