Mortgage Calculation Differences?

The formula being used is P(1+r/n)^(nt) where P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the total number of years.In summary, there are discrepancies in mortgage calculations between using mortgage calculators on bank websites and using the formula on paper or in excel. This is due to the use of different calculation methods, with the banks using APR and taking compounding into account. The resulting monthly payment from using APR is $1252.80, which is lower than the $1264.14 calculated using simple interest.
  • #1
bingie
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Mortgage Calculation Differences??!

So, I'm doing some mortgage calculations and I am finding some discrepancies between using the mortgage calculators on bank websites and by using the formula on paper on in excel.

For the following mortgage:
P= 200,000
I = 6.5%
N = 30 Years

Using the formula Pr(1+r)^n / (1+r)^n - 1 OR using PMT in excel yields a monthly payment of $1264.14 (Same example is in http://en.wikipedia.org/wiki/Mortgage_calculator)

However, using Canadian online mortgage calculators (https://www.rbcroyalbank.com/cgi-bin/mortgage/mpc/start.cgi/start) or (http://www.bmo.com/calculators/mortgagecalculator/) show a monthly payment of $1252.80.

I have checked the numbers on a few different bank sites and they all have the same amount of $1252.80

How are they calculating this number??

Thanks
 
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  • #2
The banks are stating APR as opposed to simple interest. This means that the 6.5% is taking the effects of compounding into account.
 
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FAQ: Mortgage Calculation Differences?

What is the difference between a fixed-rate and an adjustable-rate mortgage?

A fixed-rate mortgage has a constant interest rate throughout the entire loan term, while an adjustable-rate mortgage has a variable interest rate that can change over time.

How do the monthly payments differ between a 15-year and a 30-year mortgage?

The monthly payments for a 15-year mortgage are typically higher than those for a 30-year mortgage because the loan is paid off in a shorter amount of time. However, the total amount of interest paid over the life of the loan is significantly lower for a 15-year mortgage.

What factors can cause differences in mortgage calculations?

The interest rate, loan term, loan amount, and type of mortgage (fixed or adjustable) are the main factors that can affect the calculations of a mortgage. Additionally, the borrower's credit score and down payment can also impact the interest rate and overall cost of the loan.

How does a down payment affect mortgage calculations?

A larger down payment can lower the loan amount and reduce the monthly payments, while a smaller down payment may require the borrower to pay for private mortgage insurance (PMI) and result in higher monthly payments.

How can I estimate my monthly mortgage payments?

You can use an online mortgage calculator or speak with a lender to get an estimate of your monthly mortgage payments. The calculator will take into account the interest rate, loan term, and loan amount to provide an estimate, but keep in mind that the actual payments may differ depending on your credit score and other factors.

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