So how DOES HSBC calculate mortgage interest

Celebrimbot

I'm a fairly numerate person so I wanted to try to predict my interest payments for the lifetime of my fixed term mortgage (I should be able to do this to the penny). After all, the monthly interest payment must come from a formula.

I am currently concluding that HSBC is charging me interest at 6.15% rather than the stated 5.99%.

I'm told that interest is calculated on a daily basis but charged on a monthly basis - fair enough.

So I figure that the daily interest rate is 1.0599^(1/365) = 1.0001594

I assume this then works out in the following way:
Say the capital is £100000, the daily charge is £15.94 (rounded to the nearest penny). This gets added on and the next day the interest is calculated based on a rate of £100015.94. And so on.

At the end of the month all of this is put on the statement on the same day that I pay my monthly payment.

Can I first check that the above methodology is right?

tomstickland

Is it interest only or repayment?

Thrugelmir

You need to calculate the amount of interest accrued in each given calendar period ( ie allow for variable number of days). Add it on at the end each month deduct your repayment amount and repeat the process for the term of the mortgage.

firstaspect

Celebrimbot wrote: »

I'm a fairly numerate person so I wanted to try to predict my interest payments for the lifetime of my fixed term mortgage (I should be able to do this to the penny). After all, the monthly interest payment must come from a formula.

I am currently concluding that HSBC is charging me interest at 6.15% rather than the stated 5.99%.

I'm told that interest is calculated on a daily basis but charged on a monthly basis - fair enough.

So I figure that the daily interest rate is 1.0599^(1/365) = 1.0001594

I assume this then works out in the following way:
Say the capital is £100000, the daily charge is £15.94 (rounded to the nearest penny). This gets added on and the next day the interest is calculated based on a rate of £100015.94. And so on.

At the end of the month all of this is put on the statement on the same day that I pay my monthly payment.

Can I first check that the above methodology is right?

Not quite. They will calculate the interest each day based on the figure to start with of 100000. It won't go up to 15.94 by the second day as the interest isn't charged until end of the month.
So 100000 + (15.94 * number of days in month) - Repayment amount = Balance at end of first month. And repeat (obviously changing the calculation due to the new balance at the beginning of the month)

TrickyDicky101

Banks usually quote on a nominal basis so given daily interest your rate of 5.99% equates to

5.99%/365 = 0.0164109% per day. You would then determine the monthly interest by taking the days in the month and opening balance and multiplying out:

Op Balance X Days in Month X 0.0164109%