Repayments on an Interest only mortgage.

D

demoivre

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350k at 4.69% nominal, 4.26% APR - what are the monthly repayments interest only? I say 350000(.04260/12) which equals 1242.5 per month ie the APR is used in the calculation: one of my friends ( who is taking out the loan) says 350000(.04690/12) which equals 1367.92 per month ie the higher nominal rate is usd in the calculation. Who is correct?
 
Thanks , I 've just lost a tenner :mad: but I can live with that! I based my calculations on my on experience of some interest only stuff that I have and in my cases the repayments are definitely based on the APR - I assumed that this was the case generally. It seems ponitless quoting the true rate ie the APR if nominal rates are used in the calculations. I have argued in the past on here that the amount repayable per thousand is a better measure of the cost of funds - this reinforces that view. Anyone got a loan of a tenner
 
Does this methodology apply to interest only, or is it common to all mortgages?
 
AFAIA minor differences can happen, where legal fees etc are included in the loan, and how the interest is calculated on the mortgage (most now apply interest on a daily basis).
Where a loan is discounted in the first few years of a mortgage you may get discount rate 3.5% nornal variable rate 4.5% APR 4.7% the APR being the actual interest rate spread over the full term of the mortgage.
 
This throws the cat amongst the pigeons imo if some banks are using apr's and some are using nominals to work out repayments - how are we supposed to make a valid comparison? IFSRA and the like insist on an APR being quoted but clearly it is of decidedly limited use as I shouldn't have been using it at all in the example of my mates borrowings! I would suggest again that the cost per thousand is what we should all be looking at.
 
CCOVICH said:
Does this methodology apply to interest only, or is it common to all mortgages?
Click to expand...

It's pie in the sky stuff imo. A few years ago I asked IFSRA to point me to the formula that shows the relationship between APR and cost per thousand - they couldn't and you won't find it on the web either - there is any amount of stuff available if you Google APR but none will show the crucial link between APR and cost per thousand. This is very significant because if there isn't a commonly used formula to link APR and cost per thousand then none of us knows the implications for our repayments of say a 25 bp rates rise - we are at the mercy of the bank to tell us what the new repayments are. With an interest only mortgage it should be easy to work out the changes but now it seems that you need to know whether the bank is using APR or nominal! For my interest only loans the APR is used - I have just checked them again to make sure I haven't lost the plot!
 
I find using the financial function PMT in Excel very handy and accurate.
Don't know the basis of the calculations though

You can check this out by setting up a calculation every month for the term of the mortgage (little tedious)
 
Interesting thread about APR calculation at http://www.askaboutmoney.com/showthread.php?t=5012
for those interested. Extract below

 
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