Is my bank ripping me off?

[h8dk97]

Since I'm looking for an IP I thought it would be a good idea to see how much we would have to pay to the bank, so I used some loan repayment calculators. I also decided to check our current loan to see how accurate the calculators actually are. The figures I use here are the fixed portion of our loan:

Loan amount: $73,762.38
Interest rate: 6.89%
Loan term: 25 years

Here are the results from yourmortgage.com.au calculator:

Monthly: $516.17 Total Interest: $81,229.63
Weekly: $118.61 Total Interest: $81,145.57
Fortnightly: $237.27 Total Interest: $81,183.71
Half monthly
paid fortnightly: $258.09 Total Interest: $63,898.66


National bank calculator:

Loan Repayments
Input Values

Loan Amount 73762.38
Interest Rate 6.8900
Loan Term 25 years
Repayment Frequency Monthly

My loan repayments will be: $516.96


And here's what we actually pay: 539.50


First of all, why is there difference in calculator's results? and why is there a difference of about $23 between what calculators tell me and the actual repayment?
For the variable part of our loan the difference is couple of hundred dollars!

If you had similar experiences or know something about this I would appreciate your feedback.
Thanks in advance.

 

[Kevmeister]

I think you need to check your loan documentation very carefully. Some considerations:

1. I believe NAB charges a service fee per month. Have you factored that in?

2. Is it possible that some of your loan establishment fees were capitalised as part of the loan, such as mortgage stamp duty or similar. So your $X loan was actually $X+2K for example, which would affect the repayments?

Rolf can probably provide more possibilities also. Have you called the bank and asked them what the initial balance actually was, and what other fees per month you are copping?

Kevin.

 

[Lotana]

Example

Hello H8,

Check the actual interest charged on your account - this is more important than your repayments. If the interest amount is correct and you pay a few dollars more than you should on a term loan, you'll end up paying it off sooner. Usually interest is calculated daily and debited monthly. This means that at the end of each day all transactions for the day are applied to the account and then the interest is calculated using daily rate = annual rate / 365 (or by 366 if it is a leap year). Here is an example for your case.

Suppose, your account balance was $73,762.38 as of 1 Oct 2002.
On the 20th of October you made a payment of $539.50. On the 1st of November the bank would debit $X as interest for October. How much is $X?

Daily interest rate is 6.89% / 365 = 0.018876712

Interest for the 1st 19 days of October would be:
$73,762.38 * ( (1.00018876712 to the power of 19) - 1 ) = $278.98

Account balance on the 20th of October = $73,762.38 + $278.98 - $539.50 = $73,501.86

Interest from 20/10 to 30/10, 11 days would be:
$73,501.86 * ( (1.00018876712 to the power of 11) - 1 ) = $166.67

Therefore the total interest charged for October is
$278.98 + $166.67 = $445.65

Say cheese


Lotana

 

[h8dk97]

Re: Example

Hi Lotana,

It's a good point. I just wander what figures the loan calculators show, is it interest only or is it interest + principal? Logically they should show the whole thing, that is interest + principal.

I've checked, the lowest interest charged on this account was $391.55 and the highest $461.29. So, what's the point of using these calculators if they don't give you accurate figures? As I said before, the repayment for variable portion is almost $300 more than the figures I've got from calculators.


Kevmeister,
To answer your questions: we have a professional package, we do not pay any fees except $350 annually (which is not a part of loan repayment) and we paid cash for all the buying expences i.e. deposit, stamp duty etc.

Thank you all for replying.

Originally posted by Lotana
Hello H8,

Check the actual interest charged on your account - this is more important than your repayments. If the interest amount is correct and you pay a few dollars more than you should on a term loan, you'll end up paying it off sooner. Usually interest is calculated daily and debited monthly. This means that at the end of each day all transactions for the day are applied to the account and then the interest is calculated using daily rate = annual rate / 365 (or by 366 if it is a leap year). Here is an example for your case.

Suppose, your account balance was $73,762.38 as of 1 Oct 2002.
On the 20th of October you made a payment of $539.50. On the 1st of November the bank would debit $X as interest for October. How much is $X?

Daily interest rate is 6.89% / 365 = 0.018876712

Interest for the 1st 19 days of October would be:
$73,762.38 * ( (1.00018876712 to the power of 19) - 1 ) = $278.98

Account balance on the 20th of October = $73,762.38 + $278.98 - $539.50 = $73,501.86

Interest from 20/10 to 30/10, 11 days would be:
$73,501.86 * ( (1.00018876712 to the power of 11) - 1 ) = $166.67

Therefore the total interest charged for October is
$278.98 + $166.67 = $445.65

Say cheese


Lotana

 

[Lotana]

Hi H8,

Generally term loan calculators should give you a total monthly repayment figure for the term of the loan. However the figure will always be different from the real life situation because of the following factors not taken into account by public domain calculators:

1. Is the interest charged in arrears or in advance?
2. Small charges such as GDT and FID depending on the state the account is held in.
3. Timing of the first repayment. Banks have different practices - some will only accept your first repayment after 1.5 months since the time of loan advance.
4. Timing of the loan - the total number of days in the loan period may differ depending on how many "February the 29th"s are there. For a 25 year loan you can get either 5 or 6.

You may want to ask your bank how they calculate the interest.

Hope this helps.

Say cheese

Lotana

 

[superman]

Methinks:

Loan calculators show an average monthly repayment.

Banks charge interest for statement periods which are approximately month long. For example, if you settle your loan on the first of a month, the next payment period may start not on the first of the next month because of weekend/public holiday. A 'bank month' can be anything from 27 to 33 days long.

MS Excel does all the calculations, but a simple calculator with a power function will do.

Just my 2c

superman