Annual Interest Rates for mortgages

A1dan_2

Does anybody know about how Annual Interest Rates for mortgages are quoted?

I have a mortgage fixed at 5.29%.

I would have though that the monthly rate for this should be compounded, which would come out as 0.4305% (ie raise that to the power 12 and you get 5.29).

However, the mortgage company appear to be charging 0.4408% per month (ie 5.29 / 12).

This doesn't seem right to me, as the 0.4408% per month will be compounded and the actual annual rate will be 5.42% pa.

Does anybody know if they are allowed to do this?

Thrugelmir

A1dan wrote: »

Does anybody know about how Annual Interest Rates for mortgages are quoted?

I have a mortgage fixed at 5.29%.

I would have though that the monthly rate for this should be compounded, which would come out as 0.4305% (ie raise that to the power 12 and you get 5.29).

However, the mortgage company appear to be charging 0.4408% per month (ie 5.29 / 12).

This doesn't seem right to me, as the 0.4408% per month will be compounded and the actual annual rate will be 5.42% pa.

Does anybody know if they are allowed to do this?

Your lender will have quoted 2 rates of annual interest originally for comparison purposes.

Depending on the frequency that interest is charged. The rate for comparison is the AER ( Actual Effective Rate), as distinct from the simple APR (Annual Precentage Rate).

Your calculation is correct. As true rate of interest is 5.42%.

This often gets overlooked. When comparing rates its the AER that needs to be checked.

A1dan_2

Doesn't the AER also include fees etc?

Is there anyway just to find out the actual compound interest rate (other than calculating it yourself)?

Thrugelmir

A1dan wrote: »

Doesn't the AER also include fees etc?

Is there anyway just to find out the actual compound interest rate (other than calculating it yourself)?

Should have been quoted in your mortgage offer etc, and is quoted on marketing literature.

A1dan_2

Thrugelmir wrote: »

Should have been quoted in your mortgage offer etc, and is quoted on marketing literature.

Cheers, will dig out the original docs etc.