Definitions for "Initial interest"
This is a payment made to the lender which, covers interest between completion and the first monthly payment. e.g. if mortgage payments are normally due on the 30th of a month and the loan completes on 14th March, the first monthly payment may be due one month from 30th March, on 30th April. Therefore any interest due for the period from completion until 29th March will be due with the initial mortgage payment. Thus, the borrower's first mortgage payment will normally comprise one full month's payment plus the initial interest.
This often catches borrowers unaware. Initial interest is a payment which covers the period between completion and the normal date when the mortgage payment is due, e.g. a mortgage maybe completed on the 15th October and the first payment due is on the 28th. A borrower will have to pay interest for the period between the 15th and the 28th, 13 days interest. This is an extra cost not always pointed out to borrowers until they have completed.
This figure is usually shown on the mortgage completion statement and refers to the amount of interest charged from the date that the funds are drawn down to the first repayment date. This has the effect of increasing the first mortgage payment and the amount of the initial interest payable will depend on the time in the month when the mortgage is completed. For example, if the mortgage payment is due on the 1st of the month and the mortgage is completed on 18th June then the first monthly mortgage payment will become due on 1st August. That monthly payment will, however, include one months interest from 1st July - 1st August and also 13 days interest from 18th June - 30th June which represents the initial interest.