How is the APR on the Seniors Money Lifeloan calculated

S

SGWidow

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OK folks - don't scream please! Normally, I can count beyond 10! I was trying to do the maths on the Spry Finance interest rate and I can't reconcile their figures. Can some kind soul please help?


The fixed rate currently offered is 5.50% per annum fixed for life.

The fixed rate you will be charged will be confirmed in your Loan Offer, together with a forecast of how the loan will grow over time based on that fixed rate.

The Annual Percentage Rate (“APR”) depends on how much you borrow. Your APR will be calculated and provided to you during the application process. Representative APR on a loan amount of €70,000 over an assumed term of 15 years at a 5.5% fixed rate would be 5.82% per annum. The total cost of credit would be €89,502.

The APR Charges include a Set Up fee of €1,500 (inclusive of a valuation fee of €180 and a loan redemption fee of €100 (payable at the end of the Lifetime Loan term) .


Can someone show me the step by step calcs please?
 
@SGWidow , it is monthly compounding working it's magic. The headline figure of 5.5% is charged at 0.4583% per month. This compounds 12 times in a year so the effective rate works out at 5.65%. The rest must be the fixed costs you mentioned

Google an effective interest rate formula/calculator if you want to see the equation
 





I don't know how they incorporate the following into calculating the APR: The APR Charges include a Set Up fee of €1,500 (inclusive of a valuation fee of €180 and a loan redemption fee of €100 (payable at the end of the Lifetime Loan term) .

The formula is in the Appendix of the Consumer Credit Act
 
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SGWidow said:
Taking Brendan's figure of €89,431..... it's still €71 quid out?
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If you calculate it out exactly, using the number of days / 365, rather than a monthly rate, I get exactly EUR 89,502.40
That was using 15 years from 1/1/2021, with monthly capitalisation on the last calendar day of each month. There are 3 leap years in that, so 3 years where there is an extra days interest.
 
159,430/(1+i)^15+100/(1+i)^15+1,500+180=70,000 => i = 5.81643% = 5.82% to 2 dec places.
Seems extra charges are 1,500+180+100 which is a funny use of word "inclusive"
It seems very high to me, considering current ECB rate, mortgage rates, UK rates for same product and BoI rates in the noughties when ECB rate was much higher
We can possibly blame the Joe Duffy factor for about 3% of this charge.
 
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Thanks everyone,

So the Duke's basis - and far be it from me to contradict him - reconciles the APR
But
Still leaves a question mark over the stray €180 and is inconsistent with the total cost of credit declared.

RedOnion manages to reconcile the cost of credit on the dot. How does RedOnion's basis work in relation to the APR if the €180 is indeed inclusive?

[I am taking it that the total cost of credit is not the total cost of credit! but simply the interest on the loan amount. I am taking it that the APR does include the additional charges which presumably are €1,500 and €100.]

Problem is I can't reconcile RedOnion's figures either and I don't know how to do a screen dump of my excel!
My entry for the first of the 180 months are:

31, 5.5, 365, 70000, 326.99, 70326.99

which becomes in month 180

31, 5.5, 365, 158665.83, 741.17, 159406.99


**********************************

I know all this is now at the margins but I'd like to understand how RedOnion did his calcs!

The substantive point is that there is a need for this product and it's a pity that the charges are so high.
 
I'm on the case but I did allow for the 180.
 
Thanks Duke,

My understanding/point is that you added the 180 to the 1500 when we both believe that the wording suggests that the 180 should be included in the 1500?
 
Amazingly, yes that does the trick. The difference is entirely due to those 3 leap years.
I am very surprised that this sort of detail was employed and am still open to this being a coincidence and that there is some other explanation of the €71.
 
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Thanks again RedOnion and Duke,

I now understand how the numbers seem to be calculated. Hey!

At the risk of testing your patience beyond reasonable norms, may I ask two final calculations:

1. Are we agreed that the comment that the €180 is included in the €1,500 is incorrect?

2. Why is the total rate in a leap year greater than an ordinary year?


Before screaming at the last question, here's what I think should happen!!

Non-leap year
Monthly interest rate = no of days in the month/no of days in the year/Interest rate

Leap year
Monthly interest rate = no of days in the month/no of days in the year/Interest rate

On this basis, the monthly rate in a leap-year, for every month except February, is less than its non-leap-year equivalent! The composite rate for all 12 months is then identical in both years!
 
SGWidow said:
1. Are we agreed that the comment that the €180 is included in the €1,500 is incorrect?
Click to expand...
It's the only way I can get the figures to work - I have to count both the €180 and the €100 as being in addition to the €1,500. But reading the brochure this is not what it is saying, so I am not satisfied that I have bottomed out the calculation of APR.

The actual mechanism is to accrue interest daily and then consolidate it monthly so that compounding is monthly. But there is no reason why what you say could not be done though note that would mean that on a daily basis the interest would be cheaper in leap years. It reminds me of the opposite scenario - it always made me hopping mad that I got paid the same salary in leap years as in ordinary years.
I guess it is conventional not to adjust the daily rate for leap years and since the APR gives the true picture there is no harm done.
 
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SGWidow said:
1. Are we agreed that the comment that the €180 is included in the €1,500 is incorrect?
Click to expand...
No.

From their website it is included:
"Set-up Fee: €1,500 - Applies to all new loans
This fee covers the cost of an independent property valuation (€180) and a contribution to the costs incurred by Seniors Money in arranging your loan (€1,320)."

Fees and Costs for a Lifetime Loan - Spry Finance

The €1,500 set-up fee covers the cost of an independent property valuation and a contribution to the costs incurred by Seniors Money
www.spryfinance.ie

It looks like there is an error in the calculation of the advertised APR, but as the APR is specific to the loan actually being applied for, I'd be more reliant on that. The actual APR on a 70,000 loan would be slightly less than 5.82%

SGWidow said:
2. Why is the total rate in a leap year greater than an ordinary year?
Click to expand...
That's how interest works on all daily accrual balances.
 
Duke of Marmalade said:
It seems very high to me, considering current ECB rate, mortgage rates, UK rates for same product and BoI rates in the noughties when ECB rate was much higher
Click to expand...
Relative to the products available c. 2006, I agree, it's expensive. But there are a few things influencing that, such as:
1. The provider is not a bank (or large scale life assurance company like in the UK). They are borrowing from Deutsche Bank, and presumably that's at a hefty enough margin. They don't have the scale to access cheaper funding, or the bond markets.
2. The product is fixed for 15 years. The swap curve needs to be factored in. This is a difference from the 'seniors money' product of 2006, which was variable, unlike the BOI product.
3. Regulation is expensive for a small scale business. There is more regulation now than previously, and there is an added cost of being in this type of business. Until there is scale, that cost has a big impact on pricing.
4. There is no competition. And in my opinion unlikely that there will be anytime soon: https://askaboutmoney.com/threads/life-loans-are-back.221722/page-9#post-1703399
 
Thanks again folks.

SGWidow said:
1. Are we agreed that the comment that the €180 is included in the €1,500 is incorrect..........if we take it that the APR is correct?
Click to expand...



RedOnion said:
That's how interest works on all daily accrual balances.
Click to expand...

You're not a banker, are you?

Duke of Marmalade said:
I guess it is conventional not to adjust the daily rate for leap years and since the APR gives the true picture there is no harm don.
Click to expand...

Oh the Good Lord Above. First time I read your post, I thought "well that all makes sense". But then another question comes to me - hopefully, (for my sake at this stage!), my final question!!

Why do you say that bit about the APR? Per your spreadsheet, the APR was derived from the total interest applied plus the charges. Wouldn't this mean that if my version of the interest rate basis was to be applied (with the corresponding adjustment to the interest payable) that this would impact on the APR?! [The way that you have written it seems to suggest to me that the APR is more like an independent calculation when surely it's completely dependent on the basis used?]

RedOnion said:
Relative to the products available c. 2006, I agree, it's expensive. But there are a few things influencing that, such as.......
Click to expand...

All valid explanations but nonetheless of zero added value to the customer.
 
Slippery country where we will probably be talking at cross purposes. The APR calculation in the CCA appendix appears to ignore leap year complications though it does talk of proportions of years which may imply using a 366 day for leap years.
One company might charge on a 365 day basis, another on a 365/366 day basis and yet another on a 360 day basis. But they all have to use the same APR basis as set out in law and this will give an apples for apples comparison.
 
Thanks for all the explanations, Duke.

I've used up my quota of questions.

Accordingly, can I seek a final indulgence please?

Can you show the CCA APR calcs please? I just want to try to understand why a 365/366/36X days basis for calculating the cost of credit has seemingly no relevance to the official APR calc.
 
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