Verifying interest calculated on a Mortgage
- Thread starter burkemg
- Start date
Try Karl Jeacle's mortgage calculator. Don't forget that in the early years of an annuity mortgage the repayments are mainly interest with a small bit of capital. As you chip away at the outstanding capital balance eventually this shifts to mostly capital and a small bit of interest. Karl's graphs illustrate this amortisation process.
Brendan Burgess
Founder
- Messages
- 53,767
Hi Burke
The interest should be fairly easy to verify in rough terms as it is calculated monthly.
If you owe €100,000
at an interest rate of 3%
the interest for the month should be 100,000 x .03 / 12 or around €250 per month.
If you make a significant capital repayment during the month, the arithmetic is a bit more complicated, but you could break it down into weekly calculations.
The repayment due is a much more complicated exercize. It depends on the amount outstanding, the period left in the loan and teh interest rate. You would need the calculator referred to by ClubMan to give you this.
Annr
Yes. When you repay a capital sum, you will have a choice of reducing your repayments while keeping the same term of the mortgage or maintaing the repayments and thus reducing the term.
Brendan
The interest should be fairly easy to verify in rough terms as it is calculated monthly.
If you owe €100,000
at an interest rate of 3%
the interest for the month should be 100,000 x .03 / 12 or around €250 per month.
If you make a significant capital repayment during the month, the arithmetic is a bit more complicated, but you could break it down into weekly calculations.
The repayment due is a much more complicated exercize. It depends on the amount outstanding, the period left in the loan and teh interest rate. You would need the calculator referred to by ClubMan to give you this.
Annr
Yes. When you repay a capital sum, you will have a choice of reducing your repayments while keeping the same term of the mortgage or maintaing the repayments and thus reducing the term.
Brendan
Yes - that's correct. Making accelerated regular (e.g. paying more than your initially agreed repayment) or lump sum capital repayments on a variable/tracker rate annuity loan can save significant costs in terms of interest. Basically you are reducing the amount outstanding quicker so the interest charges are less in the long term. It also reduces the effective term of the mortgage.
Post crossed with Brendan's.
Post crossed with Brendan's.
CoffeeBrew
Registered User
- Messages
- 40
burkemg said:
My guess is that you already have this question answered and this is way more detail than you need but if anyone is interested in the formula I actually have it to hand because I'm working on some property investment software to allow various "what if" scenarios to be modeled.
The formula is tricky by hand but easy for the computer..
m = p x i / [ q x ( 1 - [1 + (i/q)]^(-n x q) ) ]
m = calculated monthly repayment
^ = to the power of
p = principal
i = interest rate
q = payments per year
n = number of years
once m is calculated you need to loop for each month and perform
h = p (i/q) this is the interest part of your monthly repayment
c = m - h this is the principal part of your payment
q = p - c this is the new principal, set p = q, loop back to calculate h
For example, Borrow 250,000 at 3.75% over 30 years
(numbers rounded to nearest euro for clarity)
p = 250000
i = 0.0375
q = 12
n = 30
I = interest componenet of monthly payment
P = principal component of monthly payment
RP = remaining principal
Monthly repayment = 1158
.......I...P...PR
Sep-05 781 377 249623
Oct-05 780 378 249246
Nov-05 779 379 248867
Dec-05 778 380 248487
Jan-06 777 381 248106
Feb-06 775 382 247723
Mar-06 774 384 247339
Apr-06 773 385 246955
May-06 772 386 246568
Jun-06 771 387 246181
Jul-06 769 388 245793
Aug-06 768 390 245403
Sep-06 767 391 245012
Oct-06 766 392 244620
Nov-06 764 393 244227
Dec-06 763 395 243832
Jan-07 762 396 243436
Feb-07 761 397 243039
Mar-07 759 398 242641
.. and so on
Brendan Burgess
Founder
- Messages
- 53,767
Hi Bizzy
If you miss a repayment, you have a larger amount outstanding, and as interest is usually calculated daily, the amount of interest charged rises a little. I don't think that they generally immediately change the repayment due.
In general, the repayment stays the same but the missed payments are due as accumulated arrears.
The repayment is recalculated at particular events e.g. a payment of capital or a rescheduling of the mortgage or an interest rate change.
Occasionally, if you fall into heavy arrears, they "capitalize the arrears". In other words, they just recalculate a higher repayment, but wipe out the arrears. This does not reduce the balance outstanding though.
Brendan
If you miss a repayment, you have a larger amount outstanding, and as interest is usually calculated daily, the amount of interest charged rises a little. I don't think that they generally immediately change the repayment due.
In general, the repayment stays the same but the missed payments are due as accumulated arrears.
The repayment is recalculated at particular events e.g. a payment of capital or a rescheduling of the mortgage or an interest rate change.
Occasionally, if you fall into heavy arrears, they "capitalize the arrears". In other words, they just recalculate a higher repayment, but wipe out the arrears. This does not reduce the balance outstanding though.
Brendan
Brendan,
A neighbour of mine showed me a series of letters he got in relation to his mortgage. He got into some difficulty with his payments. I noticed that he wasn't getting his tax relief so told him he should apply. When he was approved his mortgage was re-calculated and the monthly instalment went UP! He said this has happened to him before when interest rates went down his instalment went up!
It seems they are capitalising his arrears to arrive at a new instalment but WITHOUT 'wiping out the arrears'. How can they use this method? I thought lenders calculated instalments on the basis of payments being up to date - the arrears being arrears of those instalments. I estimate the instalments are 3-4 times what they should be.
I was wondering if there is legal formula as to how mortgage instalments are calculated and under what conditions they can be changed? Is there something in the legal mortgage documents which determines this?
Anyone else ever come accross this? Is it legal?
Bizzy
A neighbour of mine showed me a series of letters he got in relation to his mortgage. He got into some difficulty with his payments. I noticed that he wasn't getting his tax relief so told him he should apply. When he was approved his mortgage was re-calculated and the monthly instalment went UP! He said this has happened to him before when interest rates went down his instalment went up!
It seems they are capitalising his arrears to arrive at a new instalment but WITHOUT 'wiping out the arrears'. How can they use this method? I thought lenders calculated instalments on the basis of payments being up to date - the arrears being arrears of those instalments. I estimate the instalments are 3-4 times what they should be.
I was wondering if there is legal formula as to how mortgage instalments are calculated and under what conditions they can be changed? Is there something in the legal mortgage documents which determines this?
Anyone else ever come accross this? Is it legal?
Bizzy
G
Gobnett
Guest
Good afternoon,
I have developed spreasheets to calculate interest / repayment amounts on mortgages and loans which I could send on to you if you like.
I have developed spreasheets to calculate interest / repayment amounts on mortgages and loans which I could send on to you if you like.