Mortgage Interest Calcalation Help

doubledippps on 15/10/2024 - 13:22

Hi everyone, I’m seeking some clarity on how mortgage interest is calculated.

I have a loan of $120,000 fixed for 1 year at an interest rate of 6% p.a., with a loan term of 11 years and fortnightly repayments of $600.
I notice that interest is deducted monthly from my account, but the amounts vary each month and can differ by up to $50.

Here are my questions:

How exactly is the interest calculated? Is it applied daily, monthly, or yearly?
Is the interest calculated as a straightforward $120,000 x 6% for the entire year?
Is the interest calculated daily and then applied to my account monthly?
If I want to calculate how much interest I'm paying for this year, should I base it on the remaining principal balance after each monthly repayment?

I appreciate any insights or experiences you might have on this!

Thank you!

General Discussion

Comments

  • akhmed on 15/10/2024 - 13:39

    Hey,

    The interest is calculated on a daily basis on the principal amount.

    Now it depends if you on table payment or Interest only.
    If on table payment you will notice your principal amount reducing every month after each payment, and now because your principal is reducing so will your interest cost.
    If on Interest only, then the principal will remain the same, and interest cost should also remain the same.

    What you need is this: https://www.calculators.org/loan/amortization.php
    Enter your data and it will show you your payments.

  • bigcheese on 15/10/2024 - 13:53

    You can also try https://sorted.org.nz/tools/mortgage-calculator/
    Plugging in the numbers you provided will give a graph like this

  • RockCartel on 15/10/2024 - 16:59

    6% on 120k = 7200 (about $19.73 day)
    If you are paying off some of the 120k principle each month that amount of interest should reduce over the term
    Does your loan agreement say how they calculate and charge?

    • RockCartel on 15/10/2024 - 17:02

      Side story from some years ago
      I was on interest only fixed 5% over 3 years
      The monthly payments varied by a difference of up to $400! There was no logic. It was not linked to days of the month. And it wasn't consistent on the same months over the 3 years.
      The sum of the interest paid was exactly correct and the same for year 1 and 3. But the sum for year 2 was more by $170
      I wasted a few days of my life trying to get that $170 back (or at least explained). Being exactly $170 it feels like a service charge, but the documents didn't cover it. And with the payments fluctuating so wildly it was impossible to know what month had the extra added.
      The bank never explained and basically said the amounts are correct. The Banking Ombudsmen said they couldn't see any wrong doing. I came to the realization the Banking Ombudsmen is there to serve the banks, not the customers.
      Needless to say I will never bank HSBC again. And before signing any financial agreement I get it in writing what the exact amounts will be, when they will be due, for the entire term of the agreement.

  • doggos2 on 16/10/2024 - 08:55

    You are correct rock cartel. Banking ombudsman is paid by the banks and is blind to hard evidence.
    Another calculator at interest.co.nz

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