# The monthly mortgage payments calculated by my bank don't match the calculations I've made - why?August 17, 2006 4:05 PM   Subscribe

The monthly mortgage payments calculated by my bank don't match the calculations I've made - why?

£88,000 mortgage at 4.5% over 20 years. According to sites like http://www.jeacle.ie/mortgage/uk/, and a number of other mortgage calc sites, as well as my calculations in excel, I should be paying £556.73/month, but my mortgage company has set the payments at £556.18/month. Why the difference?

There was also a £25 BACS charge, and a £350 charge for setting up the mortgage, but they should obviously put up my monthly payments, rather than bring them down. What am I missing here? I'm in the UK, if that has any bearing.
posted by anonymous to Work & Money (5 answers total)

Could the difference be whether the payments are credited at the start of the month vs. the end of the month?
posted by Nelson at 4:16 PM on August 17, 2006

Can you see the amortization schedule for your bank? There might be a difference on how often and/or when they are compounding the interest. Especially with a difference that small, it is likely a simple thing like that.

Try running your excel calculation but varying whether the interest is calculated at the beginning or the end of the period (one of the options in the Excel formula).

It could also be based on the fact that dividing your payment up doesn't work out evenly to 240 payments, so the last payment is for slightly more than all of the others. In fact, when I use what the bank quoted you, it shows your final payment being smaller than the others.
posted by bove at 4:17 PM on August 17, 2006

360 day year versus a 365?
posted by JohnnyGunn at 5:10 PM on August 17, 2006

I can only help here peripherally, but I work in Banking and the UK institutions are dreadful at transparency sometimes.

My numbers were off proportionally far more than yours (about 5%), but I could not get Natwest to help me understand how they arrived at their results.

I finally determined it was down to when they added interest onto the remaining principle; this approach was different than how it was handled in the US (I'm American) and once I got that difference accounted for I was far closer than my original estimate. Still off, still no help from Natwest, but closer. I was ok with that.

I've been paying down principal pretty aggressively, so the only further action I would adivse is make sure that your mortgage behaves intuitivelly if you do make prepayments. You might be surprised if they calculate interest annually instead of daily.
posted by Mutant at 11:36 PM on August 17, 2006

It has to do, as Mutant says, with how interest is calculated and applied to the loan- whether on a daily, yearly or monthly rate. If it's calculated on a daily rate, then the payments will be a teeny bit lower than monthly or yearly.

If you added the BACS and admin fees into the mortgage instead of paying them upfront or having them deducted from the advance, you'll be paying interest on them over the term of the mortgage - a very, very expensive way of paying a £25 BACS fee.
posted by essexjan at 12:55 AM on August 18, 2006

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