Happy Saturday AusFinancers.
Bit of a query around my mortgage and the amount of interest charged.
I’m with one of the Big 4 and, in late 2023, changed my mortgage offset account from my transaction account/cash hub to my emergency fund as I’ve been disciplined enough to get it to five digits for the first time in my life. I’m a bit of a data nerd and have been tracking my transactions across all my accounts for the last 18 months which has helped massively with keeping me accountable.
I logged in today to export my January transactions and saw that the interest changed for my mortgage was significantly higher than what it had been previously. Wondering why this was, I asked my partner, who is an accountant, to help me double check the calculations.
We calculated that the amount that I should have been charged in interest as > $100 less than the actual interest charged. That’s without even taking the offset or my fortnightly repayments into consideration.
We calculated it using both cumulative and compounding interest formulas.
((P x R) / T) = Interest (daily)
P = Principal
R = rate as a decimal - 0.0619
T = 365
($365,443 x 0.0619) = $22,620.9217
$22,620.9217 / 365 = $61.9751
Interest x 31 (days in January)
= $1,921.23
We also figured we’d try a compounding interest formula for shits and giggles:
A = P(1 + r/n)[sup]tn[/sup]
A = Future Value
P = Principal ($365,443)
r = rate as a decimal (0.0619)
t = time in years (see below)
n = Number of times interest is compounded per year 365
When we used t = (1 / 365) * 31 days
= 0.085
The amount came to $1,927.68
However, when we used 0.09 (for shits and giggles and to test a theory), the amount came to $2,041.39
This is the amount of interest I was charged.
WTF… can anyone confirm/elaborate?
Do the banks genuinely only use two decimal places for their interest calculations?! If so, how is this allowed?
Secondly, how and why would I have been charged that amount when the amount I have in my emergency fund should have offset some of it?
Very confused and not looking forward to having to call the bank on Monday.
Bit of a query around my mortgage and the amount of interest charged.
I’m with one of the Big 4 and, in late 2023, changed my mortgage offset account from my transaction account/cash hub to my emergency fund as I’ve been disciplined enough to get it to five digits for the first time in my life. I’m a bit of a data nerd and have been tracking my transactions across all my accounts for the last 18 months which has helped massively with keeping me accountable.
I logged in today to export my January transactions and saw that the interest changed for my mortgage was significantly higher than what it had been previously. Wondering why this was, I asked my partner, who is an accountant, to help me double check the calculations.
We calculated that the amount that I should have been charged in interest as > $100 less than the actual interest charged. That’s without even taking the offset or my fortnightly repayments into consideration.
We calculated it using both cumulative and compounding interest formulas.
((P x R) / T) = Interest (daily)
P = Principal
R = rate as a decimal - 0.0619
T = 365
($365,443 x 0.0619) = $22,620.9217
$22,620.9217 / 365 = $61.9751
Interest x 31 (days in January)
= $1,921.23
We also figured we’d try a compounding interest formula for shits and giggles:
A = P(1 + r/n)[sup]tn[/sup]
A = Future Value
P = Principal ($365,443)
r = rate as a decimal (0.0619)
t = time in years (see below)
n = Number of times interest is compounded per year 365
When we used t = (1 / 365) * 31 days
= 0.085
The amount came to $1,927.68
However, when we used 0.09 (for shits and giggles and to test a theory), the amount came to $2,041.39
This is the amount of interest I was charged.
WTF… can anyone confirm/elaborate?
Do the banks genuinely only use two decimal places for their interest calculations?! If so, how is this allowed?
Secondly, how and why would I have been charged that amount when the amount I have in my emergency fund should have offset some of it?
Very confused and not looking forward to having to call the bank on Monday.