Mortgage Repayment Calculations

-T- · 20-04-2006, 03:43 PM

Hello

I decided last night to do a few calculations on my current mortgages and it seems none of them work out to be the same what I am charged. The two residential mortgages I have with CBA apparently have no fees due to me having $x of business with them. So does anyone know why the calculations would be out?

For example, I have one for $270k @ 6.34 %, Interest only. Now I'm not sure how often interest is compounded, but let's look at the obvious scenarios:

Annual compounding:
= 1426.5 /month

Six monthly:
= (((1 + 0.0634/2)^2 - 1) x 270000) / 12
= 1449.11 /month

Monthly:
= (((1 + 0.0634/12)^12 - 1) x 270000) / 12
= 1468.69

The actual monthly payment is 1453.86.

I know it's not going to send me broke, but it just messes with my financial recording because I have to make manual changes for every payment that is auto calculated. Plus I would be interested to know where I have gone wrong.

Many Thanks

-T- · 20-04-2006, 04:03 PM

I just did another calc on a PPOR with St George:

436k @ 7.32%, Principle & Interest, 25 yrs

Actual repayment is 3010 /month (it's going to fortnightly soon)

Annual compounding:
= ((436000 x 0.0732) / (1 - 1/(1+0.0732)^25))/12
= 3208.18

Six monthly:
= ((436000 x 0.0732/2) / (1 - 1/(1+0.0732/2)^50))/6
= 3187.99

Monthly:
= ((436000 x 0.0732/12) / (1 - 1/(1+0.0732/12)^300))
= 3171.13

hmmmm, maybe, just maybe, my calculations are flawed

MichaelWhyte · 20-04-2006, 04:28 PM

T,

Just checked your math on the P&I calculations and they're all correct. The actual formula is an annuity that has been re-arranged to solve for the periodic payment.

i.e. R = A / ([1-(1+r)^-n]/r)

Or, for the example of monthly compounding interest given your situation it would be:

R = 436,000 / ((1-1.0061^-300)/.0061) = $3,171.13

So, not sure I can help you out as your math seems good to me.

Cheers,
Michael.

Sim · 20-04-2006, 04:32 PM

For IO loans, the calculation is usally ... ((P * I) / 365) * DAYS_IN_MONTH

So for months with 31 days, you will pay ((270000 * 6.34%) / 365) * 31 = $1453.86

For months with 30 days, you will pay $1406.96 and in non-leap-year February, you would pay $1313.16

If you're paying the same amount every month for an IO loan, then they are calculating things wierdly (or it is actually a pseudo-P&I loan !!).

Maverick · 20-04-2006, 04:34 PM

Quote:

Originally Posted by -T-

I decided last night to do a few calculations on my current mortgages and it seems none of them work out to be the same what I am charged.

Hi,
The Interest Savers software claims to enabled identifying interest overcharges on home loans, investment loans, lines of credit loans, etc.
I haven't used the software myself, but I've seen recommendations from a credible source.

Regards.

Maverick · 20-04-2006, 04:49 PM

Quote:

Originally Posted by Sim

If you're paying the same amount every month for an IO loan, then they are calculating things wierdly (or it is actually a pseudo-P&I loan !!).

I guess there is a difference between what we have to pay to the lender and what lender charges into the loan account.
What I mean is that we pay the same amount (interest payment) on IO loans each month into the account from which the lender deducts the payments (it may only change with interest rate change), but the lender charges different interest amounts into the loan account.

It looks like that:

HTML Code:

Date    Description          Debit       Credit      Balance
--------------------------------------------------------------
06Oct05 Repaymt A/C Tfr                  1099.70     196848.78
06Oct05 Interest             1076.86                 197925.64
06Oct05 Admin Fee               8.00                 197933.64
06Nov05 Repaymt A/C Tfr                  1099.70     196833.94
06Nov05 Interest             1111.88                 197945.82
06Nov05 Admin Fee               8.00                 197953.82
06Nov05 M/E Service Fee         3.00                 197956.82
06Nov05 Int Adjustment                      0.03     197956.79
06Dec05 Repaymt A/C Tfr                  1099.70     196857.09
06Dec05 Interest             1076.48                 197933.57
06Dec05 Admin Fee               8.00                 197941.57
06Dec05 M/E Service Fee         3.00                 197944.57

Same amounts (1099.70) are credited into the loan account, but different amounts are debited (based on number of days in the months and outstanding loan ballance, calculated daily).

Regards.

D&K · 20-04-2006, 08:46 PM

I have tried this before too and can only get a close match when I factor in the days in the month and a few other minor adjustments. Maverick has shown one of these minor factors that need adjustment (but not sure if you were aware of it). Note that the admin fee is usually charged after the repayment comes out and accumulates interest for the month also. Its only a few cents and over a 25 year loan can adds up to about $15, but its just enough to put your calculations out when trying to reconcile the last few cents. Banks - don't you just love 'em

You also get minor pre-payments when you pay a steady amount each month and the actual interest charged changes - another monir factor.

I use the PMT function in MSExcel for P&I loans. Easy way of doing the formulae discussed.

-T- · 21-04-2006, 02:33 PM

Quote:

Originally Posted by Sim

So for months with 31 days, you will pay ((270000 * 6.34%) / 365) * 31 = $1453.86

Those dodgy b*****ds!

You have found the missing link Sim'. They are charging me for 31 days every month! That is actually really dodgy. They must do it on purpose! hehe

-T- · 21-04-2006, 02:47 PM

Maverick: so do you put those deviations down to interest being calculated on a different number of days per month?

That must be the issue with our St George loan; it's a fixed rate but the payments go up and down.

Thanks for the replies guys; back to the drawing board.

Maverick · 21-04-2006, 03:46 PM

Quote:

Originally Posted by -T-

Maverick: so do you put those deviations down to interest being calculated on a different number of days per month?

Yes, and I'm not too much concerned with this as all I need is to make the defined amount of money available in the offset account (which otherwise has $0 balance during the month to utilise more negative gearing and to invest funds elsewhere for higher returns

) on the same day each month.
I might check out the program that I have mentioned in the post earlier one day, but now this is how things are done...