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Mortgage repayment calculation question

Discussion in 'Finance & Banking' started by TimM, 20th Jun, 2008.

  1. TimM

    TimM Member

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    Hello everyone, this is my first post here on Invested although I've been reading the forum for a while and have found it very helpful.

    I was wondering if someone (maybe a mortgage broker?) could help me understand something.

    I am currently looking into transferring my mortgage from ANZ to Suncorp. Suncorp is able to offer a lower interest rate (8.77% vs 8.97%), however based on their calculations, fortnightly repayments will be higher, all else (term of loan, payment frequency) being equal.

    I don't understand how a loan with a lower interest rate can have higher fortnightly repayments. The banking manager at suncorp explained that it was due to differences in the way interest is calculated and how frequently it is charged, although this went over my head.

    Is anyone able to explain this in plain language for me? It would be much appreciated.

    Thanks
     
  2. jrc77

    jrc77 Well-Known Member

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    Just wanted to check if you are comparing fortnightly replayments for both loans?

    JR
     
  3. TimM

    TimM Member

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    Yes I am.

    Cheers
     
  4. Billv

    Billv Getting there

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    ok same size loans but do you have an offset account
    linked to the loan and have money in the offset?
    Cheers
     
  5. TimM

    TimM Member

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    Yes, both loans will have an offset account linked, however the amount in the current offset account is small (approx $1000).

    Loan is for $200,000 over 30 years, fortnightly repayments.

    Even the calculators on the 2 banks websites give quite different results. $750/fn vs $790/fn.
     
  6. Redwing

    Redwing Well-Known Member

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    Whats the Comparison Rate?

     
  7. Billv

    Billv Getting there

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    Tim,

    Is the loan interest only?
    Because if it's not the repayment also includes payment against the principle.
    Also, with offsets, some lenders with some particular loans they calculate the whole interest without taking into account the money in the offset.
    Yes they charge less interest monthly against the loan but they deduct a higher amount from the offset and deposit it into the loan.
    So the loan size is slowly being reduced.

    Cheers
     
  8. TimM

    TimM Member

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    The loan is P&I.

    Also, there's no fees with the new loan (staff benefit), so I don't think the comparison rate is applicable.

    Could it be to do with how often the interest is calculated?

    Still confused.
     
  9. Billv

    Billv Getting there

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    Tim

    Since it's a P&I loan and the difference is so small I wouldn't worry about it.
    If it bothers you call your lender, they should be able to tell you what the interest component is.

    Cheers
     
  10. boringbanker

    boringbanker Member

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    melbourne
    Hi Tim,

    you will find that repayment amount will differ between banks due to the way their calculator is set. At the end of the day, what really important is the interest you pay, if your repayment is higher that just means that you're going to pay off the principle a bit sooner.

    Btw.. banks normally don't take off set into account when calculating repayments.
     
  11. willy1111

    willy1111 Well-Known Member

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    Location:
    Melbourne
    Some lenders calculate the fortnightly repayment by dividing the monthly payment by 2.

    Other lenders calculate the fortnightly repayment by multiplying the monthly repayment by 12 and dividing by 26.

    The former repayment will be higher.