Mortgage Interest Calculation Help

chateauneufdupape

Mortgage Interest Calculation

Hi,

I have an offset repayment mortgage with the Newcastle Building Society and I am trying to calculate what my interest should be. The interest rate is 5.75% and they apply daily interest. The starting balance on the 1st March was £63,014.98. On the 3rd March £500 was paid into the offset account and £482.52 was paid into the mortgage account. On the 31st March I was charged £303.29 interest. However, I can not work out how they reach this figure.

I have used the following calculation to work out the daily interest

(1+5.75/100)^(1/365)

I then work out the daily interest on the starting balance and add the days interest to it to give me the days closing balance. I have repeated this for each day of the month, taking account of the two deposits on the 3rd March. However, the sum of the interest is only £286.16. I read somewhere that banks only have 360 days, so using this in the equation still only gives me a total interest of £290.14. Where am I going wrong?

I have done this in a spreadsheet which I can pm if that helps.

James_H

The 5.75% is an annual rate, but not an annualised rate! Your actual monthly rate is 5.75%/12 = 0.4791666%.

Then you could do something like (1+0.4791666/100)^(12/365) to get a daily rate of 0.01572%. This compares to 0.01532% in your calculation. I'm not sure which day count is appropriate, especially with the leap year this year.

Was the 1 March balance actually the 29 Feb amount, so do you have 31 days of interest? 31 days and the alternative interest rates gets quite close to the £303.29.

sarahpeck

Using the figures you provided I came to £303.40 interest.


£63,014.98 @ 5.75 % for 3 days = £29.78
£62,032.46 @ 5.75 % for 28 days = £273.62

Totals £303.40

chateauneufdupape

Thanks for the replies. I have worked out to the penny what they are doing. They add interest daily at a rate of 1.00015710382514 (1+5.75/366/100) and apply this to the starting balance in order to calculate the balance at the end of the day. They then calculate the next days interest on the previos days balance plus interest (i.e. compound interest).