We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
We're aware that some users are experiencing technical issues which the team are working to resolve. See the Community Noticeboard for more info. Thank you for your patience.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Calculating mortgage interest
Options
hyposmurf
Posts: 575 Forumite
How is it done?If I take off the interest from my mortgage at the star of the year from the current balance and multiple by my interest rate,it doesnt give the same figure.
However this would make sense as the interest is calculated monthly and the interest compounds each month, so that it makes it difficult to calculate.
Is there an easy way to calculate the interest.I have also tried dividing the interest by 12 for a monthly rate then adding this monthly interest to my mortgage for each month.(inc the previous addition of interest)
I remember asking my mortgage provider via phone to run me through how it was calculated,they seemed a little dumstruck then passed me onto another person and another person, until they admited they werent sure how to calculate mortgage interest.Which for a bank is quite abismal.
There are calculators about, but I've only come across those that calculate total interest over the loan mortgage period.Sorry for the bold text I copied it from another of my posts that is relocated to here.
However this would make sense as the interest is calculated monthly and the interest compounds each month, so that it makes it difficult to calculate.
Is there an easy way to calculate the interest.I have also tried dividing the interest by 12 for a monthly rate then adding this monthly interest to my mortgage for each month.(inc the previous addition of interest)
I remember asking my mortgage provider via phone to run me through how it was calculated,they seemed a little dumstruck then passed me onto another person and another person, until they admited they werent sure how to calculate mortgage interest.Which for a bank is quite abismal.
There are calculators about, but I've only come across those that calculate total interest over the loan mortgage period.Sorry for the bold text I copied it from another of my posts that is relocated to here.
0
Comments
-
Well there is none but a couple of people here have some sort of spreadsheet where to work it out.
Why do you want to know all this about the interest?
You see the sellers and underwriters do not sit there with a calculator to work it out, but use highly sophisticated software which does it for them. The inner workings of this is their prized possession and there is no way ever that anyone will part with the info on that.
Usually the basic way to work out your interest is the mortgage amount multiplied by the percentage rate then divided by 12 to give you a monthly figure of interest only.
£100,000 x 6% divided by 12 months = £500 per month interest only
You can then take that amount away from your repayment part and you will know how much goes towards the interest and how much towards your repayment. Obviously this changes the more you pay back and any interest changes and if calculated daily the number of days in a month......
I know it is not exactly what you are looking for. Maybe bump your post later this afternoon for the others to see the post and reply. I think Gorgeous George was one with a spreadsheet.0 -
If you are on a monthly interest calculation it should be as easy as taking your balance at the beginning of the month. multiplying it by the interest rate charged for that month, then deducting the payment before doing it for the following month.
However, amount of interest charged will vary depending on the number of days in the month.
E.g.
January starting balance £100,000. Interest Rate 6.00%
So £100k x 6% x (31/365) = £509.59 interest charged for the month.
If interest only payment collected would be £500. So starting balance for Feb would be £100,009.59
If interest rate was the same for Feb then
£100,009.59 x 6% x (28/365) = £460.32. As rates haven't changed they would still collect £500 as your monthly payment. So your starting balance for March would be £99,969.91.
Obviously in leap years you take 366 days into account.
Could be worse it could be daily interest and then it depends on what day you made the payment!!0 -
Well its the largest loan I have ever had,so I want make sure there are no mistakes made.Why not check it.Thanks to you both for your replies I'll go away and work with this.UK007BullDog wrote: »Well there is none but a couple of people here have some sort of spreadsheet where to work it out.
Why do you want to know all this about the interest?0 -
Just been digging out my paperwork and discovered my intrerest is calculated daily.So would that be :
£100k x 6% x (1/365) = interest payable
or is there anything I'm not taking into account?Maybe leap years?I suppose there is no best time to make an overpayment,such as overpaying just before the monthly interest calculation on a monthly calculated mortgage.
Also it likely the interest would be calculated before the payment is made on payment day?0 -
Daily interest makes the calculations more complicated as you have to check the balance at the end of every day.
So for the example I did above if you pay on the first of the month.
Balance Day 1 = £100k Payment received day 1 = £650 then interest charged for day 1 is £100k x 6% x 1/365 (366). Then 30 (29,28,27) days (depending on month & leap years) @ 99350 x 6% /365 (366).
Some lenders will capitalise their interest (add it back to the loan) monthly others will do it yearly.
So if your lender did it monthly and the interest charge on above calculation for March 2008 would be:
100k x 6% x 1/366 = 16.393
99350 x 6% x 30/366 = £488.606
Total interest for the month = £504.999 so balance for start of April would be £99855. With this method you are paying interest on interest
Some will capitalise Annually and so the balance for the start of April would be £99350.
You also need to look at their interest charging year to work out when the number of days is 365 or 366. E.g Halifax's year is 1st Feb to 31st Jan if I remember correctly (although they do send their statements out throughout the year, based on the date your mortgage started)
Hope that helps. Good luck with the calculations!!0 -
-
You can use snowball calculator to check exact monthly interest, capital paid, total debt left every month etc. It assumes interest is daily and capitalised at the end of the month.
http://www.whatsthecost.com/snowball.aspx
You can save the snowball and then export it to Excel.0 -
bananabrain wrote: »Could you expand on this please and tell me when is the best time make monthly mortgage payments, and why.
I suspect I may have had it wrong for three years...
1st of the month is the day to pay to keep interest charges to a minimum.0 -
1st of the month is the day to pay to keep interest charges to a minimum.
Hmm.... What about mortgage payment out on 2nd of the month, then overpay on the 3rd or as close to that as possible?
I think my interest is applied almost immediately after mortgage goes out on the 2nd.
Danke.Tough times never last longer than tough people.0 -
It's a tough one as I don't know how every lender will charge interest. Most would do it from 1st to end of month, so I was just providing a generic answer
It would be worth speaking to your lender to find out your interest charging period. If they charge you daily interest you want to pay as soon into that period as possible.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 350.8K Banking & Borrowing
- 253.1K Reduce Debt & Boost Income
- 453.5K Spending & Discounts
- 243.8K Work, Benefits & Business
- 598.7K Mortgages, Homes & Bills
- 176.8K Life & Family
- 257.1K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards