This week, our team here at The Mortgage Calculator have been paying special attention to repayment methods; in specific – standing orders. This unique payment option is what most banks will propose when it comes to claiming back what they are owed, but unlike other types of orders that can be put into place; due to the tendency for interest rates to fluctuate it’s not uncommon for the monthly sums to differ in amount with each repayment.
What is a standing order?
You might be curious to learn what this type of order actually is – especially if you usually pay for your goods and services in cash, or via direct debit. In simple terms this payment solution allows an automatic way to repay what has been borrowed, so as to remove the immediate need for a borrower to take a trip down to the bank, or to handle payments manually online.
How do they work?
In the majority of cases a bank will agree on the set amount that is due to be withdrawn from a borrower’s bank account, on the same day every month. This day might differ depending on holidays, month durations and so on, but the result will always be the same – a payment that is taken automatically from the borrower and sent to the bank’s account every four weeks (or to suit the agreed repayment method).
They work by allocating a set amount each month from the sum within an account. This amount will be unusable by the account holder (the borrower) and as each new payment is made into the account, the order will set aside the exact sum owed. This isn’t always the case however, and with some accounts the bank will simply draw on the cash available at the time – especially those that relate to personal, or savings accounts.
If there isn’t enough cash in the account, or if the withdrawal leads to the borrower being overdrawn, then it will be the responsibility of the account holder to cover the cost of any associated fees. A good way to avoid this is to ensure that all earnings are paid directly into the same bank account that is responsible for covering the cost of the mortgage payments, whenever they are due.
This can help to ensure that fresh funds are always there, whilst allowing the bank enough time to set aside the cost of their order; or at the very least be able to relax in the knowledge that the sums are typically available each month (as the borrower will be paid into this account). That pretty much sums up all that there is to know about these types of payment options and if you’d like any further information, then feel free to get in touch with our team for advice and support.