Getting started with overpayments - daily interest calculations

jeanangeo

Hi,


I've been lurking on this forum for a couple of years whilst I cleared off credit card debts and built a small emergency fund.

I am now finally in a position to start making overpayments on my mortgage. However, I am a Northern Rock Together Mortgage holder (please don't judge me, I've never missed a payment). I am in negative equity and my only hope of ever being accepted on a decent mortgage product is to overpay to reduce the LTV. I accept this is my own fault for buying a house in a stupid way and I am ready to get on with overpaying.


I have been reading around the internet a lot and have read quite a few horror stories about the bad things that happen when people don't track what NRAM is doing with their overpayments. For example, I have read about overpayments that go astray, that are not split across the various accounts in the proportions requested, daily interest recalculations that never happen, etc, etc.


I have already been caught out once because of a mistake NRAM made at the beginning of the term that I didn't spot. I had to swallow the result of the mistake because I didn't query it at the time. Because of this mistake, I now have 3 accounts with NRAM; my mortgage (4.78%), my unsecured loan (4.78%) and a second unsecured loan to cover the mistake that was made (0%).


So, this time, before I start overpaying I would like to be in a position where I can track what my provider is doing and be sure that everything is happening as it should.

The first part of that process is to understand how they are calculating my interest and payments now.


My understanding is that I make payments on the 1st of every month, a daily rate of interest is calculated from the remaining balance and then charged per day at the end of the month.


An example from an old statement:


Opening balance: £125,038.79
Payment made on 1st November: £684
New balance: £124,354.79
Interest added on 30th: £488.65
New balance: £124,843.44


My problem is that I have failed at the first hurdle. I cannot understand why the interest is £488.65. I calculated it to be £488.56.


Balance after payment made: £124,354.79
Divided by 100: £1243.5479
Multiplied by 4.78: £5944.158962
Divided by 365: £16.28536701917810
Multiplied by 30 (days in Nov): £488.56101057534200


Now, I know we are talking pennies here. I ignored it at first. However, these figures are from 2013. I expanded my spreadsheet to run until October 2015 and I was several hundred pounds out. I can't use the above formula to track my payments if I can't get it to match the existing history...


Is my daily interest calculation wrong? Should it be compounded perhaps...?


Or is the discrepancy being caused by rounding....?


If it is being caused by rounding, then is there a standard rounding strategy for daily interest calculations or does each provider apply their own rules? I have tried everything from rounding each step to the nearest penny to only rounding the last step. I just can't get my figures to match theirs. I'm calling them about this on Monday but their customer services don't seem to know much about what goes on behind the scenes and it could take days to get an answer...


If anyone else knows the answer it would greatly help me....


Thanks for reading,
Jean

A_Frayed_Knot

Does your opening balance include the amount that is on 0% interest? because that would mean you only take the two balances that have the 4.78% charged against them, and not include the balance at 0%, if that makes sense.

Other than that a quick phone call should sort it out for you.

jeanangeo

Hi there A Frayed Knot,


Thank you for your reply .


Northern Rock send me separate statements for each account. The one I was referring to in my post was the main mortgage account.


I rang NRAM a few minutes ago. I got through straight away and then had to spend fifteen minutes explaining why I would possibly want to work out the interest myself. Apparently, it seems that this is not usual behaviour.... I was pretty surprised to hear that considering how many stories I read about screw ups...


Anyway, the best they would offer me is to write me a letter in 5 to 7 days that explains how they perform the calculation.


That is OK as I'm not starting overpaying until 1/1/2106. There is still so much to work out and I'll be spending quite a more time reading the diaries on this forum in order to plan what to do.


Thanks again very much for your reply .

A_Frayed_Knot

Sometimes I wonder:think:, you are supposed to just accept what they charge and not question it, well that's how we all end up paying more than we have to:(.

Has anyone ever explained that you can overpay 10% of the total mortgage at the beginning of the year when you either apply or remortgage - well NO of course not, why would they tell you that:silenced:.

Of Course, sometimes there is just a simple explanation, but if you don't ask, you'll always wonder, and it will eat away at you, so you're doing the right thing by asking.:wall: if you care to share with us.

Just make sure you receive the letter and if not, chase up, Will be waiting to hear their explanation:D.

jeanangeo

I didn't know that you could do that when you re-mortgage. That's good to know . I will definitely share the letter when it arrives .

A_Frayed_Knot

I think you may have mis understood. What I meant was when you take out mortgage they never tell you that you can o/p 10% in a year to year basis, I had to find out for myself.

If you are out of a deal when you re-mortgage, you can actually pay off as much as you want without restriction as there would be no penalty for either paying any amount or even paying it all off if you were so inclined to do so.

Also when you remortgage you can opt to change the amount of years you take it out for, so long as they are happy that you can afford the new payments.

jeanangeo

Ah, I see. I did misunderstand . Thank you for re-explaining. I didn't realise that the restriction was lifted once you were out of fixed term. I knew I wasn't under a restriction with NRAM at the moment but I thought that was because they were waiving all early redemption charges because they are winding down. I thought I may be subject to a restriction again if my mortgage was one of the ones sold to Cerberus. I'll be very glad if that is not the case .