calculating monthly interest rate from annual

geekboy

So I'm projecting my mortgage repayments and equity in Excel.

Say the mortgage rate is 6.5%. Would you say that the monthly interest rate is:

simple division of annual rate:
0.065 / 12

OR:

reversing the formula for a compound rate:
((1 + 0.065) ^ (1/12)) - 1

I note that the difference between these formulae is quite small, but I want to get it right.

cheers!
geekboy

pollyanna24

Can't remember where I got this formula from, but it's stored on one of my spreadsheets.

P = (((outstanding balance / 100) * APR) / 365) * days in month

geekboy

Thanks, pollyanna. That's a formula for an equivalent monthly payment based on APR. It implies the same method as my first suggestion (a straightforward division of the annual rate), except that yours takes account of varying days per month - which I guess is important if interest is calculated daily.