bank daily interest monthly bill, how do they calculate?

rjbell

rjbell

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I've been looking at offset mortgages and they might be a good option for me as i tend to have money lying around all year for my annual tax bill. I can not however get my head around the maths. They say the calculate the interest daily but you have a monthly payment so do the calculate how much is in the account every day then divide it by 28 to get a monthly average of funds in the account?
 
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Have you looked at money saving expert they have an offset mortgage calculator
 
munch said:
Have you looked at money saving expert they have an offset mortgage calculator
Click to expand...

This.....it's a pretty damn good resource that site.
 
Yes i've been on there as i do for most things and i get the just of how it works. What i don't get is how they calculate your savings balance on a daily base's when its can be going up and down.
 
rjbell said:
I've been looking at offset mortgages and they might be a good option for me as i tend to have money lying around all year for my annual tax bill. I can not however get my head around the maths. They say the calculate the interest daily but you have a monthly payment so do the calculate how much is in the account every day then divide it by 28 to get a monthly average of funds in the account?
Click to expand...

Every day they calculate the amount of interest based on (total mortgage outstanding minus amount in the offset account), then add the daily interest amount to the total mortgage outstanding. So, at the start of the month you pay the normal monthly repayment and your total mortgage amount outstanding goes down by that much, then creeps back up again over the month until the next payment.

The lenders don't (normally) vary the repayment amount every month. Having money in the offest account usually means the total time it takes to pay the mortgage goes down, although lenders also tend to offer the chance to recalculate the monthly payment from time to time (I don't know how frequently, I've never asked for mine to be changed).

Since I can do logarithms (I paid attention in maths lessons when I was 13), I can also do the necessary calculations to convert an annual interest rate into a compounded daily interest rate.
 
clever sh!te:p
 
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