How much is interest how much is capital?

CLAPTON

Bargain_Rzl wrote: »

Nope, I give up

I can't work out how daily interest compounds over the course of a year to result in my annual interest rate.

Anybody enlighten me with a formula for calculating daily interest from an annual compounded figure of 4.89% per annum?

I am soooo close to having a whizzy spreadsheet

Thanks!

if it does compound on a daily basis (and i dont know that) but the formula is as follows

suppose d = daily interest rate expresses as a decimal fraction

then the APR = ((1+m) power 365 ) - 1 )
and APR is a decimal fraction (i.e. 5% would be 0.05)


so reversing this then

m = ((1 + APR) power (1/365) ) -1 )

or in excel you could write


=(power((1+apr),1/365)-1)
where apr is a cell with the decimal vale of the APR i.e. 0.05 for 5%

AndrewSmith

I use my leathal weapon, a trusty old Casio FC100. She is in her 14th year now and still on only the second set of batteries.

Amazing tool, could not work without it.

MarkyMarkD

Interest on a mortgage doesn't compound on a daily interest to get to the quoted rate.

The quoted rate is the rate you pay.

The reason it doesn't compound is that you are paying more than your interest each month - so you are not paying interest on interest (compounding) at all.

So if you borrow £100,000 on a 4.89% rate, you incur £4,890 of interest in a full year or 1/12 of that per month in the first month. Obviously the amount falls (a tiny bit) each month due to capital repayments, but the amount of those capital repayments is easy to work out because it's the balancing figure (i.e. your total monthly mortgage payment less the interest).

Bargain_Rzl

MarkyMarkD - that's terrific. That makes things much simpler.

Off to fix my spreadsheet... it's monthly payment day today too, so I can see if it matches!

MarkyMarkD

I should qualify my slightly over-simplistic answer by pointing out that some (not necessarily all) lenders actually calculate the monthly interest on an exact number of days basis, so in April the interest would be 4.89% x 30/365, not 4.89% / 12. My lender, A&L, certainly does it this way. It still adds up to the same amount of interest in a year, but it's more accurate.