How is daily interest calculated?

w00519772

I am in the process of switching my mortgage from Bank of Ireland to First Direct. Bank of Ireland has sent me a redemption statement today. It states a daily interest rate of: £8.42. My outstanding mortgage is £60,896.89 and the Standard Variable Rate is: 4.74%. I have done the following calculation:

((8.42*365)/60896.89)*100=5.04%

5.04% is greater than 4.74%. Is my maths correct?

The reason I ask is because I am thinking about delaying completion for a few days whilst I get my head around all of this (completion is four weeks quicker than what they estimated) and I want to make sure I am paying the right interest (I realise I probably am).

ACG

If the balance is £60,896.89 and the daily interest is £8.42 it will be costing you £8.42 every day until the next time a payment is due, if it goes beyond that date, the daily interest will need to be recalculated.

Surely if First Direct are charging a lower interest rate it would make sense to switch ASAP and check the figures are right when you get chance? BoI would refund the difference if you can evidence it being wrong down the line anyway.

w00519772

ACG wrote: »

If the balance is £60,896.89 and the daily interest is £8.42 it will be costing you £8.42 every day until the next time a payment is due, if it goes beyond that date, the daily interest will need to be recalculated.

Surely if First Direct are charging a lower interest rate it would make sense to switch ASAP and check the figures are right when you get chance? BoI would refund the difference if you can evidence it being wrong down the line anyway.

Thanks for that. Can you confirm that I should be paying the standard variable rate as the daily interest? (that is the rate I am currently on). I am wandering if they charge a different rate when going through this switch process.

Thrugelmir

You'll be charged the rate as determined by your mortgage product. Not another rate.

ACG

As above, if your mortgage offer says SVR than it will be SVR.

w00519772

ACG wrote: »

As above, if your mortgage offer says SVR than it will be SVR.

But the maths tells me that I am paying more than 4.74%. Do you disagree with my calculations? Thanks again.

TrickyDicky101

Your maths is fine. So, are you sure about either

(1) the rate you have quoted; or

(2) the outstanding balance you have quoted?

Lotak

You should using compound interest, rather than simple interest, however, even with compounding it, the numbers don't match. It would be £7.72 daily interest.

Since your interest rate is 4.74%, there are only two options I can think of:
1) Your balance is wrong (as TrickyDicky said above)
2) You have charges on the account that accrues interest at a different, higher rate.

SouthLondonUser

Lotak wrote: »

You should using compound interest, rather than simple interest, .

No, compound interest is NOT used.

If you know of a mortgage that does compound the interest, please elaborate and ideally post the terms of the contract that say so.

Otherwise, please refrain from commenting on stuff you clearly know nothing about - you are only confusing people on the forum with wrong information.

Lotak

SouthLondonUser wrote: »

No, compound interest is NOT used.

If you know of a mortgage that does compound the interest, please elaborate and ideally post the terms of the contract that say so.

Otherwise, please refrain from commenting on stuff you clearly know nothing about - you are only confusing people on the forum with wrong information.

I am gobsmacked.
Genuinely gobsmacked.

I work for a 2nd mortgage lender. I know a lot about mortgages. I created the repayment calculator that we use for our borrowers.
I had calculated, using the PMT formula in Excel my own mortgage payment, which means I thought I had calculated how the interest accrued. I only realised now that I'm wrong.

I hadn't realised that they calculate interest based on the annual rate divided by 365 and they actually do calculate interest on a simple basis (i.e. the number of days x annual rate / 365).

I always assumed it was as it was with the CUMIPMT formula, i.e. compounded, and not on a simple rate.

I'm completely shocked about this. I actually thought I knew almost everything about mortgage calculations.

I think you were a bit heavy handed with your criticism though, but I actually learned something today so I should thank you.

getmore4less

You need to know the method of calculation of the daily rate from the flat rate.

My barclays mortgage is daily interest compounded monthly.