Leap year impact on mortgage repayments

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daragh8008

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Quick question about 2008. I recently received a nice letter form my mortgage lender advising me that they had made a technical over site and never applied interest to my account for Feb 29th! They are now happy to inform me that a correction is to be applied to my account and they have provided convenient ways for me to pay. Or should I choose to do nothing about it they will simply add it to my balance and I'll be paying interest on it for the next 30 years.

All very clear so far. They didn't realise that it was a leap year so they want an extra days money. One thing struck me about this though. As a lot of months have 30, 31,28 days my mortgage was always the same. There was no monthly variation based on the number of days in the month. So why has this changed? I can only conclude that they feel short changed as it is a leap year and they now want to pull that cash back in. However wouldn't adding an extra charge per day effectively increase the annual interest rate above what was agreed in the mortgage contract? After examining the contract terms and conditions and facility letter they state an APR the number of repayments per year. It's an annual percentage rate, not a daily rate? They state in the T&C "Thereafter, monthly interest payments/repayment instalments will be collected at monthly intervals, commencing on the date specified on your mortgage application form. The monthly interest payable is calculated on the first of the month on the outstanding balance at the end of the previous month and debited to the account on the last day of the calendar month"

Your opinions please
 
Re: Leap year

daragh8008 said:
One thing struck me about this though. As a lot of months have 30, 31,28 days my mortgage was always the same. There was no monthly variation based on the number of days in the month. So why has this changed?
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Perhaps they worked on the basis of 12 monthly periods of 365 / 12 = 30.42 (rounded) days each?
I can only conclude that they feel short changed as it is a leap year and they now want to pull that cash back in.
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It is normal for lenders to charge for the extra day in a 366 day leap year. It seems odd that the lender's system did not account for this automatically. Which lender is it? (Oh - just checked the Google search below and I guess it may be Halifax?)

If I recall correctly there was a lot of media coverage about the extra leap day issue and its impact on mortgage repayments coming up to February 29th this year. Try for more.
 
Hi Daragh
I received same letter and was very surprised at the cost for 1 day.
Are other banks doing the same or is it just Halifax?
 
Yep it is Halifax. But my point is that a year (assuming Halifax is operating on a Gregorian calendar) is defined as 365 days, 5 hours, 49 minutes and 12 seconds. For convenience in dates etc, the 5hours etc are rounded off every four years. So for the three years previous you pay the full years interest while being short changed because the year is in fact 5 hours longer. So in year four the extra day should be neglected as it makes up for the over charging that appears in the previous three years.

Am I making sense?
 
Red said:
Hi Daragh
I received same letter and was very surprised at the cost for 1 day.
Are other banks doing the same or is it just Halifax?
Click to expand...

As I said most lenders will have automatically accounted for the 366 rather than 365 day year. Halifax seem to have had a problem with this for some odd reason.
 
Banks calculate interest on a daily basis. But how much was this interest. Did they add in the cost of writing, printing and stamping the letter sent to you. It would be worth while arriving in their office and dump a pile of 1cent coins on their counter.
 
Halifax is the only bank affected and it was only their Irish systems. I guess this was the first leap year since they entered the mortgage market in Ireland, or since their current mortgage systems went live?

I wonder do they have the same issue on interest calculations of their savings accounts?
 
While I understand that the bank may charge interest at a daily rate and average it out over each of the month so that all the months may be the same. By adding an extra days payment for the leap year they are increasing the cost of the leap year and hence the rate for the year. But when I examine my facility letter, it gives me the annual interest rate. Which is now wrong because they just stuck an extra days payment onto it. It doesn't mention this anywhere in the contract. It says in the contract that I will always pay the ecb rate + an extra 0.75%. So why do they feel entitled to charge extra? Maybe I'm being stupid, but when a contract says an annual rate is to be paid, why should I pay a separate day rate subsidy for a leap year??
 
Leap Year Interest

My bank have recently writen to me regarding additional interest which are are charging in respect of the 29th Feb due to this being a leap year. I'm wondering if anyone had the same experience and if this is normal? My monthly repayment is fixed at the same amount each month regardless of whether there are 30 or 31 days in the month so why whould this extra charge be levied?
 
Re: Leap Year Interest

Most banks charge interest daily at a rate of 1/365 of the annual rate per day. Few if any make an adjustment for a leap year. So in fact, they charge 366/365 of the annual rate in a leap year.

I think that you should ask for the banks terms and conditions, including their interest calculation formula. You should also ask if they pay an extra payment of interest on their deposit accounts.
 
Re: Leap Year Interest

Apologies, I didn't see that earlier post. My mortgage is with Bank of Scotland (Ireland) who I believe are one and the same as Halifax or at the very least connected with them. The leap year obviously caused them the same problems.
 
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