First Mortgage | Mortgages | Discussion forum

Please consider registering
guest

sp_LogInOut Log In sp_Registration Register

Register | Lost password?
Advanced Search

— Forum Scope —




— Match —





— Forum Options —





Minimum search word length is 3 characters - maximum search word length is 84 characters

sp_Feed Topic RSS sp_TopicIcon
First Mortgage
March 5, 2021
3:12 pm
Lg419
Member
Members
Forum Posts: 5
Member Since:
March 5, 2021
sp_UserOfflineSmall Offline

Hello,

I got a mortgage in November for the first time in my life and am having trouble determining how they determined the first interest calculation. Mortgage facts are below:

Principal amount: $268,000.00
Annual interest rate: 1.84%, Interest is compounded semi annually and charged both when a transaction is processed and at the end of each month.
APR: 1.865%

Payments are bi-weekly, starting Dec 4, 2020. Bi-weekly payments total $582.52 ($512.30 instalment of P&I + $70.22 Insurance)

Amortization: 25 years, 5 years fixed
Date of advance: November 6, 2020

My mortgage paperwork states that the first payment of $335.50 is due on Dec 1, 2020 and consists of interest only from the date of advance and the start date of the term.

My question is: how did the bank calculate the $335.50 in interest?

Thank you!

March 5, 2021
3:52 pm
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3676
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

Lg419 said
Hello,

I got a mortgage in November for the first time in my life and am having trouble determining how they determined the first interest calculation. Mortgage facts are below:

Principal amount: $268,000.00
Annual interest rate: 1.84%, Interest is compounded semi annually and charged both when a transaction is processed and at the end of each month.
APR: 1.865%

Payments are bi-weekly, starting Dec 4, 2020. Bi-weekly payments total $582.52 ($512.30 instalment of P&I + $70.22 Insurance)

Amortization: 25 years, 5 years fixed
Date of advance: November 6, 2020

My mortgage paperwork states that the first payment of $335.50 is due on Dec 1, 2020 and consists of interest only from the date of advance and the start date of the term.

My question is: how did the bank calculate the $335.50 in interest?

Thank you!  

Good question! It should just be calculated on the daily closing balance of the mortgage at the prevailing annual interest rate divided by 365 days (366 in a leap year), much like GIC interest rates are calculated.

If looking at an amortization table showing the payments and the declining balance outstanding with every payment, you just need to keep in mind that as you pay down your mortgage, there's less principal outstanding.

I'm not quite sure if this is exactly what you're looking for, but in short, I'd probably just recommend sticking to amortization calculators and let them do that for you.

Edit: Your interest payment will always be larger at the start of your mortgage, as you have more principal outstanding. As you pay more of it down, you will notice that more of your payment goes towards your principal, and as your mortgage is nearly paid off, very little goes to interest. It's kind of deflating at the start of one's mortgage knowing that probably like 90% of their biweekly payments go towards interest, but when you think about it more simply you're essentially in a rent-to-own relationship with your "landlord" (i.e., the bank or mortgage company), who returns a small sliver of equity in the home with every payment. With every payment, it returns a larger sliver of equity, and, near the end of your mortgage, your "landlord" keeps very little for itself. At the end of your mortgage, your "landlord"'s name is kicked off the title for the property, and you no longer have a "landlord" as you own the property outright.

Hope that helps,
Doug

March 5, 2021
4:10 pm
canadian.100
Member
Members
Forum Posts: 440
Member Since:
September 7, 2018
sp_UserOfflineSmall Offline

A quick calculation is

25days
365days x 1.84% x $268,000 = $337.75

very close - a small difference of $2.25 to the $335.50 you are charged

March 5, 2021
4:40 pm
topgun
Member
Members
Forum Posts: 452
Member Since:
September 6, 2020
sp_UserOfflineSmall Offline

Let the FI do the calculations. Have a great day.

Have a Great Day

March 5, 2021
9:32 pm
Norman1
Member
Members
Forum Posts: 4398
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

I think the mortgage amount is actually $268,400 and not $268,000:

$335.50 = $268,400 * (1.84%/2) * 25 days/184 days

Also, I don't see how interest can be compounded semi-annually yet "charged both when a transaction is processed and at the end of each month!"

March 5, 2021
10:11 pm
Lg419
Member
Members
Forum Posts: 5
Member Since:
March 5, 2021
sp_UserOfflineSmall Offline

Norman1 said
I think the mortgage amount is actually $268,400 and not $268,000:

$335.50 = $268,400 * (1.84%/2) * 25 days/184 days

Also, I don't see how interest can be compounded semi-annually yet "charged both when a transaction is processed and at the end of each month!"  

Thanks, @Norman1! This is the kind of explanation I was looking for; an actual calculation. I am interested to see how you got to your conclusion that the mortgage amount is actually $268,400. I'm just looking through my paperwork now: on the main page it shows principal amount of $268,000.00. However, there also shows a $300 appraisal fee (which I paid before I even got this house), a $100 discharge fee, and a $400 transfer fee. Not sure what a "transfer fee" is but perhaps that's where the missing $400 is coming from?

Just as a side note: I have absolutely no reason to believe that the bank is wrong in their calculations. I'm just curious how they got to that number. I did my own calculations never got to exactly that number.

March 6, 2021
6:56 am
topgun
Member
Members
Forum Posts: 452
Member Since:
September 6, 2020
sp_UserOfflineSmall Offline

Lg419 said

Thanks, @Norman1! This is the kind of explanation I was looking for; an actual calculation. I am interested to see how you got to your conclusion that the mortgage amount is actually $268,400. I'm just looking through my paperwork now: on the main page it shows principal amount of $268,000.00. However, there also shows a $300 appraisal fee (which I paid before I even got this house), a $100 discharge fee, and a $400 transfer fee. Not sure what a "transfer fee" is but perhaps that's where the missing $400 is coming from?

Just as a side note: I have absolutely no reason to believe that the bank is wrong in their calculations. I'm just curious how they got to that number. I did my own calculations never got to exactly that number.  

I kept the numbers from my mortgage all these years. I never figured how they started the payments. The mortgage started June 28th. The monthly payments were 1st of each month. The first payment was 3 days interest. My mortgage principle unchanged.

In your case you paid $335.50 interest for 25 days. The principle amount in your case would be $268,000 owing on December 4th. You pay bi-weekly. Every two weeks. There are 365.25 (i.e. leap year) / 14 = 26.089285714 periods in year. Using my calculator. Period as above. Interest frequency semi annually. Amortization term 25 years. Nominal interest rate 1.84%. Payment $512.30 bi-weekly for 25 years. Principle $267,997.38.

Thank you and Norman1 for providing vital information on mortgage calculations.

Have a Great Day

March 6, 2021
7:31 am
Norman1
Member
Members
Forum Posts: 4398
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

Lg419 said

… I am interested to see how you got to your conclusion that the mortgage amount is actually $268,400. I'm just looking through my paperwork now: on the main page it shows principal amount of $268,000.00. However, there also shows a $300 appraisal fee (which I paid before I even got this house), a $100 discharge fee, and a $400 transfer fee. Not sure what a "transfer fee" is but perhaps that's where the missing $400 is coming from?

Some of the other possibilities just don't look likely:

$335.50 = $268,000 x (1.84%/2) x 25.03731 days / 184 days
$335.50 = $268,000 x (1.84275%/2) x 25 days /184 days
$335.50 = $268,000 x 1.84% x 24.9012 days / 366 days
$335.50 = $268,000 x 1.84% x 24.8332 days / 365 days
$335.50 = $268,000 x 1.84% x 24.8502 days / 365.25 days

The most likely one is

$335.50 = $268,400 x (1.84% / 2) x 25 days / 184 days

It could be the $400 transfer fee that got added to the mortgage principal. It could also be more than one other items that total $400 as well.

This is just a good theory for now. Check with the bank to find out exactly how much was advanced from your mortgage account around closing.

Something could have happened last minute when the lawyers met to trade keys, cheques, and liens. The cheques from your lawyer and the bank's lawyer could have ended up $400 short for some reason. Rather have the closing fail, the bank's lawyer may have advanced another $400 from your mortgage to complete the closing.

March 6, 2021
7:59 am
Lg419
Member
Members
Forum Posts: 5
Member Since:
March 5, 2021
sp_UserOfflineSmall Offline

Thank you @topgun @Norman1, again for those calculations. Very helpful.

Perhaps a full, detailed amortization schedule would be helpful.

If I asked my bank, would they provide something like that?

March 6, 2021
8:16 am
Lg419
Member
Members
Forum Posts: 5
Member Since:
March 5, 2021
sp_UserOfflineSmall Offline

My "annual mortgage summary" in my online banking for the mortgage also states the following:

Opening Balance (Nov 6, 2020): $0.00
Funds Added (during this period): $268,000.00
Total Interest (includes additional charges)*: $415.01
Principal & Interest Payments: $1,024.60-
Principal Prepayments: $0.00
Additional Charges: $0.00

Closing Balance (Dec 31, 2020) $267,390.41
*Total Interest does not include the interest charged before your mortgage term began, a total of $0.00.

Using my Excel spreadsheet amortization table, I also don't understand how they calculated $415.01 in total interest up to Dec 31, 2020. I assume that that interest amount does not include the initial interest charge of $335.50.

March 6, 2021
8:23 am
Norman1
Member
Members
Forum Posts: 4398
Member Since:
April 6, 2013
sp_UserOfflineSmall Offline

You might get a generic one and not one specific to your mortgage account if you ask for an amortization schedule. The bank staff may just feed what they think are your principal, interest rate, and amortization into a calculator, like this one, and print it out for you!

I think a statement of actual transactions on your mortgage account starting November 2020 would be better. Could that be available through their online banking?

March 6, 2021
11:21 am
topgun
Member
Members
Forum Posts: 452
Member Since:
September 6, 2020
sp_UserOfflineSmall Offline

Lg419 said
My "annual mortgage summary" in my online banking for the mortgage also states the following:

Opening Balance (Nov 6, 2020): $0.00
Funds Added (during this period): $268,000.00
Total Interest (includes additional charges)*: $415.01
Principal & Interest Payments: $1,024.60-
Principal Prepayments: $0.00
Additional Charges: $0.00

Closing Balance (Dec 31, 2020) $267,390.41
*Total Interest does not include the interest charged before your mortgage term began, a total of $0.00.

Using my Excel spreadsheet amortization table, I also don't understand how they calculated $415.01 in total interest up to Dec 31, 2020. I assume that that interest amount does not include the initial interest charge of $335.50.  

You have well defined the mortgage terms. Norman1 determined how much interest is paid December 1. There are many conditions that we do not know the exact calculation. Best to get an amortization printout from FI.

Have a Great Day

March 6, 2021
6:26 pm
topgun
Member
Members
Forum Posts: 452
Member Since:
September 6, 2020
sp_UserOfflineSmall Offline

Is the 1.84% a nominal rate or APR?

Have a Great Day

March 6, 2021
6:30 pm
Lg419
Member
Members
Forum Posts: 5
Member Since:
March 5, 2021
sp_UserOfflineSmall Offline

Nominal 1.84%. See first post.

March 7, 2021
5:43 am
topgun
Member
Members
Forum Posts: 452
Member Since:
September 6, 2020
sp_UserOfflineSmall Offline

I could send you an Excel spreadsheet if you provided your email in a Private Message to me.

Have a Great Day

March 7, 2021
4:32 pm
Doug
British Columbia, Canada
Member
Members
Forum Posts: 3676
Member Since:
December 12, 2009
sp_UserOfflineSmall Offline

Lg419 said
Thank you @topgun @Norman1, again for those calculations. Very helpful.

Perhaps a full, detailed amortization schedule would be helpful.

If I asked my bank, would they provide something like that?  

Depends on the representative you get, really. When I worked in the bank, I would have no issues with generating these statements for customers when they'd request them. For most purposes, though, a generic amortization table available freely online, as Norman1 suggests, will be sufficient. 🙂

Cheers,
Doug

Please write your comments in the forum.