AndyC_772

iTrader: (2)

I think you're asking for more detail than most people would bother with! Personally I've never thought too much about the effect the number of days in the month has (or should have) on the monthly payment.

If you're trying to work out your payments, you might find it useful to look at your spreadsheet's financial functions - I use OpenOffice (a free, open source M$ Office clone) which has functions for calculating both the interest and capital repayments for each month of a loan, assuming an equal total payment every month. Your formula might well be right - I don't have a clue - but OpenOffice and Excel both have such a function built in anyway.

Andy.

fast bloke

Formula - The amount for a 4.64 69k mortgage is correct. (Tipton & Coseley - 4.64 2 year discount figures match)

Leap years - The payment is averaged to take long months, short months leap years etc into account. As the interest is calculated daily but generally only added to the balance monthly or three monthly , but based on a compound interest rate with monthly repayments considered, you would be hard pushed to work it out to the nearest penny.

Payment date - Say you take a 100000 mortgage and have 500 in the bank to cover the first months payment from day one...... Why not get a 99500 mortgage instead. (You can ask the lender to take payment on any date as long as it is within a month of drawdown. They just use 1 month as default

Fast_Blue_Scooby

I have been trying to work out a repayment mortgage where daily interest is added and overpayments are allowed.

I have devised the following formula:

(A)
Monthly Direct Debit = Amount Oustanding/((POWER((1+interest rate/12),Term in Years*12-months already paid)-1)/(interest rate/12*POWER((1+interest rate/12),Term in Years*12-months already paid))))

So for example, a £69000 mortgage borrowed over 20 years works out to be £441.76 a month at 4.64%.

Now if the direct debit was taken on the 1st of the month, then interest would be charged for one day only which I have worked out to be:

(B)
1 day interest = (interest rate * amount outstanding)/divided by the number of days in that year.

So in my above example, this works out to be £8.75 for the one day.
This is added to the amount outstanding and then the direct debit taken out. This would now leave a new amount outstanding of £68,566.99. Also an overpayment is allowed and this would be deducted from that amount on the same day. So in this example an overpayment of £500 would be made, reducing the amount owed to £68,066.99.

Then interest for the remainder of the month would then be calculated on this new amount which would using the above formula work out to be £8.63 a day multipled by the number of the days in the month to give a final interest for the rest of the month as £250.25 if the month has 30 days. More if the month has 31 days and less if it is Feb.

Now if anyone has got this far and works in the mortgage field, I have a couple of questions:

(1) In a leap year, does the daily interest get calculated for 366 days. ie in Formula B, I would either use 365 or 366 days depending on whether it is a leap year or not? Or are there hard and fast rules that it is 365 regardless.

(2) Related to the first question, a daily interest mortgage would it take into account 29 days in Feb for a leap year. If A is true then I imagine it would?

Also if no overpayments were made, then the monthly direct debit formula actually changes the amount each month depending on the number of days in the proceeding month. So if in my example the first payment was £441.76, the next month would be £441.72. This has the effect over the years of being different by -50p or more as the years increase. However most mortgage lendors would stick with the £441.76 every month which means in theory you would be paying slighly more off the capital each month and thus reduce what you owe. So you cannot complain about that.

However another question for those that work in the mortgage industry. I have been informed that when you first take out a mortgage, no payment is made until the second month. This payment will take into account the daily interest for the first month and up to the point in the 2nd month you make your direct debit. This I consider to be most unfair as I would have the money in my bank account in that first month to pay my first direct debit on the first day the mortgage amount was given to me. So why do lendors insist that they do this? I know they make more money out of me as I don't get to reduce the amount owed after the first day BUT can I insist that they take my direct debit from day 1 on the first month?

The reasons I ask is that even though I have asked these questions to potential mortgage lendors, they have emailed me back saying they don't have the technical know how to answer my questions!!! This has got me flabbergasted as if they don't know how their mortgage products work, how can they be expected to sell them!!

So my last chance is to see if I can catch anyone on Scoobynet who is an expert in mortgages. I know your answers may be different to how other lendors operate but anything would be better than nothing.

Also if anyone would be so kind to check that the forumulas I have devised are spot on, then again that would be appreciated.


[Edited by Fast_Blue_Scooby - 3/10/2003 10:37:12 PM]