With a repayment mortgage, your monthly payment is made up of principal and interest.
The principal is the amount you borrowed and have to pay back, and interest is what the lender charges for lending you the money.
Every month, you pay an amount of the debt itself (the principal) and the interest as well.
Month on month, your balance (the amount left on your loan) will go down and by the end of your term, you’ll have repaid the loan in full.
It’s important to understand two things: interest is paid in arrears, and principal is paid in advance.
Interest is paid in arrears
Mortgage interest is paid in arrears, which means after it's accrued, not before.
Therefore, if you complete on 15 January and pay on 15 February, your first mortgage payment includes interest accrued on the entire mortgage loan.
Principal is paid in advance
The principal portion of your mortgage payment is paid in advance, for the following month.
Each principal payment reduces the balance you owe. This means that you'll pay interest on a smaller loan balance in the ensuing month.
What does this mean for paying your mortgage?
Your first mortgage payment is due a month after you complete on your property.
This means that if you complete on 15 January, your first mortgage payment is due on 15 February.
But you get to choose your payment date (perhaps to align with utility bills or when you receive your salary).
If you complete on 15 January and you’d like to pay on the 1st of the month, your first mortgage payment would be taken on 1 February.
This means that your first mortgage payment is made up of interest accrued from 15 January to 14 February and principal would be paid down from 15 February.