HSBC - how is interest calculted?

MrChips

I recently set up my first mortgage with HSBC. The mortgage is a tracker on a 2.19% interest rate currently. The money was lent to me on 17 December and since then two interest calculations have taken place as at 31 Janury and 28 February.

While these interest amounts are approximately what I would expect, they are a bit above my own calculations. Does anyone out there know how HSBC calculate interest?

E.g. £300,000 arrived in my account on 17 December. On 18 December I would expect to owe them 300000 x 1.0219^(1/365). On 31 January I would expect to owe them 300000 x 1.0219^(45/365) = £300802.33. However £828.00 interest was added on this date.

Any clue as to what they are doing? A loss of £26 per month for 25 years adds up to almost £8,000 :eek:
One thought is that maybe they are calculating the 31 January interest at the close of the day in which case the calculation would be 46 days rather than 45 but this still only gives me £820.18 interest.

TrickyDicky101

Hi

It's a nominal rate so you don't compound it.

£300k * 0.0219 * 46/365 = £828

MrChips

Thanks - the figures all work now. All the same, it seems a bit of a strange way to do it. This means that the effective annual compound rate is closer to 2.21% pa than 2.19% pa.

Still, you live and learn!

getmore4less

A very common way to do the interest is

interest on daily ballance , compound(add to debt) monthly.

For many mortgages this is timed with the payment but some lenders have fixed days.

Barclays, for their offsets, do the interets at end of month and payments on the 16th.