Interest calculated monthly??

[kramer2006]

Hey folks, I've just received a statement from my friendly mortgage provider and I noticed that although I pay monthly mortgage installments, the bank calculate my interest quarterly. Surely I am out of pocket with this arrangement? Can anyone confirm this for me?

If so, do you think the bank would be open to changing the interest calculation if I called them up?

TIA,
kramer.

 

[GeneralZod]

Are you sure they're not applying an interest charge that is the cumulative amount of daily interest rate calculations for the previous quarter. That's slightly better than if they were making monthly interest charges because for the first two months of the quarter all your repayment goes off the principal on which the interest is calculated.

If they accept your payments broken up into fortnightly or weekly payments you'd pay less interest.

 

[ClubMan]

Hey folks, I've just received a statement from my friendly mortgage provider and I noticed that although I pay monthly mortgage installments, the bank calculate my interest quarterly. Surely I am out of pocket with this arrangement?

If that is actually the case then you do not get the benefit of monthly capital repayments until the relevant quarter has ended. It's better if the lender calculates interest monthly or, better still, daily.

 

[kramer2006]

Are you sure they're not applying an interest charge that is the cumulative amount of daily interest rate calculations for the previous quarter.

Yes, they are! I've rang the bank who have confirmed that the interest is calculated daily and applied quarterly. Worth the phone call to put my mind at ease. Thanks for the replies guys.

 

[Gulliver]

If interest is calculated daily, accumulated throughout a quarter and then charged to the account at the end of the quarter, then the effect is one of quarterly compounding. The table below shows the effect of various forms of compounding at various rates of interest:-

Effect of compounding

Stated interest rate Half-yearly compounding Quarterly compounding Monthly Compounding Weekly compounding
4.0%--------------------- 4.040%------------------------ 4.060%----------------------- 4.074% ---------------------4.079%
4.5%--------------------- 4.551%------------------------ 4.577%----------------------- 4.594% ---------------------4.601%
5.0%--------------------- 5.062%------------------------ 5.095%----------------------- 5.116% ---------------------5.125%
5.5%--------------------- 5.576%------------------------ 5.614%----------------------- 5.641% ---------------------5.651%
6.0%--------------------- 6.090%------------------------ 6.136%----------------------- 6.168% ---------------------6.180%
6.5%--------------------- 6.606%------------------------ 6.660%----------------------- 6.697% ---------------------6.712%
7.0%--------------------- 7.122%------------------------ 7.186%----------------------- 7.229% ---------------------7.246%
7.5%--------------------- 7.641%------------------------ 7.714%----------------------- 7.763% ---------------------7.783%
8.0%--------------------- 8.160%------------------------ 8.243%----------------------- 8.300% ---------------------8.322%