£1+ a day Mortgage OP challenge for April

tjp70

Hi Fairyclicks,

I would like to join in your challenge please. I have things to eBay and no inclination to do so, even when I see it's a FLW. This challenge should give me the motivation to actually list something.

Thank you for coming up with this idea.

tjp

fairyclicks

kmcld2 wrote: »

Hi Fairyclicks,
You work out your daily interest by doing the following:
Divide your APR by 365. Divide that answer by 100. Then multiply that answer with your mortgage balance. E.g: A balance of £65,000 with a 4.09% APR would be worked out as follows:

4.09% / 365 = 0.011
0.011 / 100 = 0.00011
£65,000 x 0.00011 = £7.15

Hope I make sense, I'm not very good at explaining things.

Very clear thanks kmcld2 my daily interest rate is £2.47 so i may have to aim for £2.50 a day :-P hehehehe

fairyclicks

Welcome to the challenge everyone and many thanks for joining me I really look forward to seeing all those £££ being deducted off your balances (and mine)

tjp70 i find ebay listing hard to be motivated about as well so i started a magic box challenge for that (i did say i was a challenge fiend lol). So far i have made over £60 in the last few weeks from that challenge

TheWebDev

fairyclicks wrote: »

Ah ha, thats very interesting and helpful to know - thanks a lot TheWebDev - so how do i find out how my bank calculate the daily interest and what the daily interest is? am completely new to the whole MF idea so i have no clue about these things as yet.....but i'm keen to learn

I'm registered with Nationwide for internet banking, where they show the balance of the mortgage updated daily. Using the simple formula that others have posted gives the daily interest rate. I created a spreadsheet to investigate how the interest is worked out, which is why I know it is not compounded daily.

My spreadsheet is able to predict my mortgage balance accurately into the future. I'm not going to attempt to predict it too far ahead as I haven't had the mortgage very long, so I don't know if I have to workout when weekends and bank holidays coincide with regular payment days.

If your bank provides the same information, you will be able to confirm if your bank calculates interest in the same way. Assuming that they do calculate it the same way, consider these 2 scenarios:

You overpay £2.50 everyday. This reduces the balance on which you pay interest by 3p per day (90p reduction over the month; 0.27p interest @ 3.65%).

You overpay £5 on the same day as the regular payment, skip a day and overpay £2.50 per day for the rest of the month. This immediately reduces the balance on which you pay interest by £2.53, but wont reduce the balance on which you pay interest any further during the month. (£2.53 reduction for the whole month; 0.77p interest @ 3.65%)

Lois_E

kmcld2 wrote: »

Hi Fairyclicks,
You work out your daily interest by doing the following:
Divide your APR by 365. Divide that answer by 100. Then multiply that answer with your mortgage balance. E.g: A balance of £65,000 with a 4.09% APR would be worked out as follows:

4.09% / 365 = 0.011
0.011 / 100 = 0.00011
£65,000 x 0.00011 = £7.15

Hope I make sense, I'm not very good at explaining things.

fairyclicks, there are so many different ways that lenders can calculate mortgage interest that the only way to be sure how your lender does it is to ask them - not only how they calculate interest, but how they compound it, and how they allocate OPs. If you do ask them, but you're not sure how to interpret their answer to work out the best thing to do with your OPs, then post on here to say exactly what your lender has told you about how they calculate things, and we can help you work out the best way forwards for your OP money.

Well, actually, if your mortgage statement shows the interest being added to the balance every day, then you can be pretty sure it's not only being calculated daily but also compounded daily, in which case your best bet is to pay off anything you want to pay off as soon as you possibly can. If your mortgage statement shows interest being added to the account monthly, then there are various ways they could be calculating interest, and various ways they could be allocating your OPs, so you'll have to ask them.

Hope that helps.

kittiej

fairyclicks - I shall be a lurker if that's OK?

My interest is £1.32 a day so tiny compared to others but still a bind all the same (in a nice way because my house is my sanctuary from the scary world outside)

fairyclicks

I just found this info on the website re my mortgage: Interest will be calculated on a daily basis on the outstanding balance, commencing
on the date of drawdown of the advance. Interest will be charged on the date of the first repayment and monthly thereafter.

To add complication my payment date is 2nd, however i make my payments in advance on 28th as that is the day i get paid. I never thought about the day i make the payment before!!! I will ring them and ask about allocation of overpayments i think thanks for all the info!!

TheWebDev

Lois_E wrote: »

Well, actually, if your mortgage statement shows the interest being added to the balance every day, then you can be pretty sure it's not only being calculated daily but also compounded daily, in which case your best bet is to pay off anything you want to pay off as soon as you possibly can.

Not necessarily, I created a spreadsheet to calculate how the interest was being charged by Nationwide. Initially I compounded the interest daily and my figures did not match up with the balance on the Internet banking. When I switched to simple interest (no compounding, but calculated daily) the figures matched up perfectly. This just required the addition of an extra column to maintain the balance on which interest is being charged.

Keep in mind that if you never miss a mortgage payment, you should never be charged any compound interest because your monthly payment will cover all of the previous months' interest. This means that there is effectively no difference between simple interest and compounded monthly.

TheWebDev

fairyclicks wrote: »

I just found this info on the website re my mortgage: Interest will be calculated on a daily basis on the outstanding balance, commencing
on the date of drawdown of the advance. Interest will be charged on the date of the first repayment and monthly thereafter.

To add complication my payment date is 2nd, however i make my payments in advance on 28th as that is the day i get paid. I never thought about the day i make the payment before!!! I will ring them and ask about allocation of overpayments i think thanks for all the info!!

I agree that is would be a good idea to ask them for clarification. Nationwide have a paragraph about overpayments that says something like: Capital repayments that reduce the outstanding balance, will reduce the interest that is charged from the following day.

This basically means that overpayments are used to repay interest before repaying capital. In other words, if I overpay less than the interest charged so far this month, then its effect is deferred until the next regular payment.

Hopefully your bank has similar information available. If you're lucky, you might find that overpayments are put against capital before interest. You can always try to argue it this way stating something like: How can my overpayment repay interest I haven't been charged yet?

Lois_E

TheWebDev wrote: »

Not necessarily, I created a spreadsheet to calculate how the interest was being charged by Nationwide. Initially I compounded the interest daily and my figures did not match up with the balance on the Internet banking. When I switched to simple interest (no compounding, but calculated daily) the figures matched up perfectly. This just required the addition of an extra column to maintain the balance on which interest is being charged.

Keep in mind that if you never miss a mortgage payment, you should never be charged any compound interest because your monthly payment will cover all of the previous months' interest. This means that there is effectively no difference between simple interest and compounded monthly.

OK, I'm muddled now, but keen to learn, so please could you explain a little further? I agree with your second paragraph but am still confused by the first one.

Are they really adding interest to the account balance every day but using some previous (lower) balance to calculate the interest? That seems really weird.