MSE Basic mortgage calculator tool ???

robert_taylor

I don't think that this MSE tool is working correctly. If I borrow £100,000 for 1 year at 3% interest pa your tool tells me that I must repay a total of £101,632. Surely I must repay a total of £103,000.

Also if I borrow £100,000 for 20 years at 3% interest pa your tool tells me that I must repay a total of £133,085. Surely I must repay a total of £180,611.12.

I am sure that my mathematics is correct so can someone please explain the difference...

grumbler

robert_taylor wrote: »

I don't think that this MSE tool is working correctly. If I borrow £100,000 for 1 year at 3% interest pa your tool tells me that I must repay a total of £101,632. Surely I must repay a total of £103,000.

If you (theoretically) take £100K mortgage for a year you have to make ~£8.7K monthly payments, not £100K lump sum at the end of the year.
The average balance is ~£50K.
The total interest is ~£1.5K
As simple as that.

Also if I borrow £100,000 for 20 years at 3% interest pa your tool tells me that I must repay a total of £133,085. Surely I must repay a total of £180,611.12.

Why do people keep using word 'surely' so recklessly?
Even if you don't make monthly payments, 100K*3%*20=£60K, not £80,611.12:huh:

3% p.a. is [STRIKE]0.025%[/STRIKE] 0.25% p.m.
20 years = 240 months.
In Excel notation a monthly payment
=-PMT(0.25%,240,100000)=£554.60

£554.60*240=£133,103

robert_taylor

Thanks grumbler for explaining the maths involved so well,

I hadn't factored the interest reduction for the monthly loan repayments and thanks for explaining the proper Excel formula that I should have been using.

Incidentally 3% interest per annum is 0.25 % interest per month and I got the right answers from the formula after realizing that...

Thanks.