Daily mortgage interest reapayment calculation formula?

Hi,

Im paying out on a variable interest rate mortgage at the moment and want to find out how the banks calculate the repayment cost on the amount owed every month.

As far as I know, the interest is being calculated on a daily basis. the interest rate is 3.55% (must get a new mortgage provider )
Ive borrowed 150k over 20 years, but some months I seem to be paying more interest than other months (number of days in month allowed).

What formula do they use to calcuate the daily interest on the remaining capital owed?

Thanks!

How often are you making repayments? If you are making them monthly then the fact that interest is calculated daily should be irrelevant or not that significant as far as I know. However daily interest calculation does allow for the possibility of making more regular than monthly repayments and thereby significantly reducing your overall interest costs. See this thread for more related discussion. Can you post some more specific figures - e.g. a summary of your most recent annual statement?

Clubman


You'll see here a snippet from the last January, whereby the monthly interest since January is as follows:
January: 412.48
Feb: 371.03
March 408.53
april 380.75
May 417.75

Note That Im paying in 1000 every month instead of 873 (normal expected payment as determined by the 3.55% interest rate), classic mortgage overpayment to get rid of it early

01/06/2005 Insurance- 44.99 133866.32 -
31/05/2005 Debit Interest- 417.75 133821.33 -
30/05/2005 Monthly TRSCredit+ 79.08 133403.58 -
23/05/2005 InPayment+ 1000.00 133482.66 -

03/05/2005 Insurance- 44.99 134482.66 -
29/04/2005 Debit Interest- 380.75 134437.67 -
28/04/2005 Monthly TRSCredit+ 79.01 134056.92 -
25/04/2005 InPayment+ 1000.00 134135.93 -

01/04/2005 Insurance- 44.99 135135.93 -
31/03/2005 Debit Interest- 408.53 135090.94 -
29/03/2005 Monthly TRSCredit+ 79.17 134682.41 -
23/03/2005 InPayment+ 1000.00 134761.58 -

01/03/2005 Insurance- 44.99 135761.58 -
28/02/2005 Monthly TRSCredit+ 79.10 135716.59 -
28/02/2005 Debit Interest- 371.03 135795.69 -
23/02/2005 InPayment+ 1000.00 135424.66 -

01/02/2005 Insurance- 44.99 136424.66 -
31/01/2005 Debit Interest- 412.48 136379.67 -
28/01/2005 Monthly TRSCredit+ 79.71 135967.19 -
24/01/2005 InPayment+ 1000.00 136046.90 -

Some questions that arise - Why is Mays payment greater than Januarys. Why doesnt my interest go down every month as it does on Karls Mortgage calculator? http://www.jeacle.ie/mortgage/

Be interested to see what you think

Thanks

Glad you posted this,my debit interest has also gone up by 10 Euro in the last month,even though I'm still paying the same overall amount.How is this?

Was the rate charged the same for all of the months listed above? Who is your lender? Are you sure that they are not calculating interest annually and charging it on a pro-rata basis across each month of the year or something like that? I don't really understand why your mortgage interest tax relief is fluctuating slightly as well. Are you a first or a non first time buyer? If you are a first time buyer are you in the first seven years of your mortgage? Is it a joint mortgage with more than one person claiming tax relief?

Clubman


The interest rate has not changed for over a year now on my mortgage. PTSB are my lender, and I will be 3 years into the mortgage in October. Ive been told explicitly by them (I asked) that the interest was being charged on a daily basis. I am a first time buyer of a second hand house.

It is a joint mortgage, the only mortgage interest relief is printed here. We are both in full time employment in the 42% bracket.

Does this help. This is something that has been concerning me for some time now and would like to get to the bottom of it.

Sorry - I don't really understand the calculations. Maybe somebody else can explain?

For what it's worth I'm also with PTSB.

I think I have some answers - maybe others can help.
1. TRS Credit - isnt this the interest relief credit. The interest varies month to month, hence the variation in the figure.
2. Interest is calculated by most banks on a daily rate. Lets use a simple example. Balance outstanding of €100K, interest rate of 5% (just for easy calculation) Assume at the end of jan, you had a balance outstanding of 100K even. This would give an interest charge of €410 (5% of €100K devided by 30/365) If you are making monthly repayments of €1000, therefore €590 gets taken off the principal amount.
At the end of feb, balance oustanding is €99,410 (100k minus €590) The interest charge for feb is therefore 5% of €99,410 devided by 28/365. This gives €381.29 interest charge, the balance of the €1000 monthly payment (618.70) goes off the principal.
This help?

Not sure this answers question.

Why is the last month in the figures provided the one with the the largest interest charged?

The monthly discrepancies are also too large to be explained away by differing amounts of days per month.

Suggest you need to make an appointment with PTSB.

Please let us know the outcome - this is a fascinating case.

Will do Oysterman, it may be a few days before I get back to you all on this.

What seems to be happening:
- insurance is being debited from mortgage account;
- period lump sums are being credited;
- TRS is being credited;
- interest is capitalised monthly.

Take the quoted interest and divide by 365; this is 'r'
Take the balance after any months interst is posted;
multiply that balance x r x number of days to next transaction;
adjust balance for debit or credit then x r x number of days..
etc
until end of month.

Your calculation should equal what ptsb charge.
Assumes: the day the credit or debit is applied is the new balance for that day.

Do it for one month to see if this squares.