Discrepancy between Repayment Calculator and Actual Loan Repayments

Sainter Dad on 02/01/2019 - 14:29

I am just doing a health review of my loans.

If I use the Banks Loan calculator (and Excel PMT function) for the following example:
Loan Balance: $44,572.00
Loan Period: 15 years
Interest Rate: 4.09%

I get a loan repayment of $332.00 however according to my loan schedule, repayments are $361.78. The same applies to all of my loans. The total extra I am paying per month is $189.16.

Where do these funds go? Why am I paying extra per month when I have only recently re-fixed the loans - so it is not interest rate movements? That is $2,269.88 per year that I do not know where it goes.

It is not fees as I pay a single fee every year to cover all fees.

If anyone can explain this to me I would be grateful. The reason that I ask is that in the past I have contracted and whilst being in 'credit' with the loans (ie the balance was less than a calculated balance via PMT etc) the bank got crappy that I could not make a payment for two months due to a change in employment status. They had essentially kept the repayments at the level that I had initially begun the loans - back in 1998 when interest rates were higher than in 2010, but because I had never requested a recalculation of the loan repayment schedule they just kept applying the payment - I thought I was building a redraw facility - but my loans did not allow that.

Financial

Comments

  • logist on 02/01/2019 - 14:39
    +2

    Are you sure this is a loan balance that you had at the start of your 15 year loan, not at the moment? I think what happened hare is you are taking your current loan balance but still calculate full 15 years however some time has passed since start of your loan so you should calculate it for a shorter period.

    • Sainter Dad on 02/01/2019 - 14:45

      No - I am sure that I have calculated the correct amounts - the original loan was for 25 years - the remaining balance is for the 15 years - I have just had the amounts locked for 5 years and the loans recalculated as at 3 months ago. I calculate and reconcile the interest paid each month - there is no problem there - but if I keep making the repayments I will pay out the loan early (and I want to decide when and how to do that - not rely on the bank to choose). I do not think the money is going 'missing' I just don't know how they have calculated the repayments to be different to their website and the projected calculations.

    • pantsparty on 02/01/2019 - 14:48
      +1

      Just to add a little more to this - your mortgage repayment is based on your original loan amount, it does not change as you gradually pay off your loan unless you refinance or make some other change with your bank.

      Each month part of each repayment goes towards paying interest and the rest goes towards paying down the loan balance. As the loan balance gradually goes down more and more of each repayment is going towards paying down the principal amount as opposed to paying interest on the loan balance.

      The only way you can have a redraw balance is if you have paid above and beyond the standard monthly payment.

      • Sainter Dad on 02/01/2019 - 15:36

        I understand that - but a balance of a locked loan at all times should equal the amount of interest calculated as per the loan schedule added to the principal divided by the amount of periods remaining

        In very simplistic terms
        12,000 principal
        3,000 total interest

        15,000 - total repayment $1,000 per annum

        in 5 years time
        9,000 princial
        1,000 total unequired interest

        10,000 - total repayment $1,000 per annum

        Using their calculator tells me the repayment on the amount should be $332 (an Excel PMT) not $361.78 - in other words - the loan that I have now (with a fixed interest rate) the repayments should be exactly what I would expect to pay if I went to another bank and refinanced (excluding break fees and establishment fees) - it is not - I pay $189.16 extra per month.

        • pantsparty on 02/01/2019 - 15:55
          +2

          I understand how mortgages work and to be honest I don't understand your example or the point you are trying to make - it is not very clear.

          Given this all I can say is refer back to your loan agreement - did you pay above and beyond what the agreement says your repayments each month are? If yes, I would expect you to have a redraw available.

          • Sainter Dad on 02/01/2019 - 16:07
            -1

            @pantsparty: Okay - so tell me where I am wrong

            Current loan balance - 44572.25
            Interest Rate 4.09%
            Repayment $331.71

            Created a quick Excel Spreadsheet:

            Opening Interest    Payment Closing

            Month 1 44,572.25 151.92 -331.71 44,392.46
            Month 2 44,392.46 151.30 -331.71 44,212.05
            Month 3 44,212.05 150.69 -331.71 44,031.03
            Month 4 44,031.03 150.07 -331.71 43,849.40
            Month 5 43,849.40 149.45 -331.71 43,667.14
            Month 6 43,667.14 148.83 -331.71 43,484.26

            ….

            Month 178 988.38 3.37 -331.71 660.04
            Month 179 660.04 2.25 -331.71 330.58
            Month 180 330.58 1.13 -331.71 0.00

            As per the Web Calculator

            Currently I am paying $361.78 which means that if I keep paying this until the end of the loan I will be paying $7,454.79 more than the required amount - or paying out the loan 20 months early. I am happy doing that - but it should be my choice - not the banks.

            • S2 on 02/01/2019 - 16:23

              @Sainter Dad: Perhaps the bank includes yearly fees which aren't represented within Excel? pantsparty's advice would help.

              • S2 on 02/01/2019 - 16:25

                @S2: $298 pa in fees over 25 years is $7,450.

                • Dexterdog on 05/01/2019 - 14:42

                  @S2: Yes, perhaps the 4.09% is the interest rate and not the comparison rate?

            • pantsparty on 02/01/2019 - 16:46
              +3

              @Sainter Dad: It isn't clear from your post above - is $44,572.25 the loan amount per your loan agreement? What are the monthly repayments per your loan agreement? It is all good and well that your current loan balance is $44k but if you started this loan agreement 6 months ago then the amount you actually financed would be higher than this which would explain the higher repayments.

      • S2 on 02/01/2019 - 16:21

        I agree with pantsparty, however, am not articulate enough to expand it further for you.

  • chumlee on 02/01/2019 - 16:13

    Is it calculated daily?

    • Sainter Dad on 02/01/2019 - 16:18

      Nope - monthly as shown above

      • chumlee on 02/01/2019 - 16:42

        I mean does your loan documentation state interest is calculated daily?

        • Almost Banned on 02/01/2019 - 17:43

          I doubt there are any normal bank mortgages where the interest is not calculated daily and compounded monthly.
          That has been pretty routine for decades.

          • Sainter Dad on 02/01/2019 - 23:16

            @Almost Banned: Interest calculated daily - charged monthly - but it is not about that - their own calculator shows a different repayment to the amount that I am being charged - and the loan is not old enough to allow for a legacy amount

  • ESEMCE on 02/01/2019 - 16:58

    In my experience, excess payment into a fixed rate loan doesn't accrue into redraw (if the loan has a redraw facility at all). Excess payments will pay down your principal faster, as a result, reducing your interest payment over the course of the loan.
    End result will be that you will pay down the loan in a shorter time..

    As for the reason why you're paying higher than the minimum calculated payment, it could just be a legacy issue… When you first started the loan the Interest Rate was higher and it has since dropped, but you inadvertently elected to pay the same regular payment when you fixed your rate..

    You can probably call your lender to decrease the repayment to the calculated minimum if you wish.

    • Sainter Dad on 02/01/2019 - 17:01

      Sorry - The fixed loan is less than 12 months old - and so has not suffered any legacy issues - that was what I first thought as the legacy issue was what caused my concern in 2010

      I understand that I am paying the loan down quicker - I just find it interesting that the bank can do this and not explain why

      • pernunz on 02/01/2019 - 17:25

        Have you asked the bank?

        • Sainter Dad on 02/01/2019 - 18:11

          Yes - but to no avail - they have just given me a glib answer - so I bet the bank manager a bottle of Moscatto (from one of the cheap dozen deals mid last year)!!!!

          • elgrande on 02/01/2019 - 21:45

            @Sainter Dad: What was the actual answer?

            • Sainter Dad on 02/01/2019 - 23:12

              @elgrande: No idea - I think there is an error in their system that allows them to get a loan slightly in advance so that it gives them a buffer should you miss a month. I have done the maths and expanded a spreadsheet so it takes opening balance, add interest less payments and it works out exactly like the PMT calc in Excel - so there is no explanation!

  • Enzalicious on 02/01/2019 - 18:19
    +2

    I fixed my loans and asked the same question. I’m paying weekly so it might not apply to you. Basically they take the monthly repayment and divide it by 4. There’s more than 4 weeks in a month so you end up paying slightly more. I didn’t mind the extra going in per month.

    • JoeAC on 02/01/2019 - 22:13
      +1

      This is most likely the answer.
      The repayment is calculated on a 4 weekly basis. Sounds odd, but it’s what they’ve done.
      4 weeks x 12 months is 48 weeks, or 336 days. They have basically said you need to pay 332 dollars each 4 weeks.
      When you adjust that out to 366 days (to allow for the leap years), it’s $332 multipled by (366/336) = $361 and change.

      • Sainter Dad on 02/01/2019 - 23:11
        -2

        Sorry guys - not the correct answer - I pay monthly

        • JoeAC on 02/01/2019 - 23:33
          +1

          Yes, I understood that. I’m still suggesting that this is the calculation they’ve used to arrive at the figure you are being charged each month. Really no way to know for sure without the bank explaining it though; odd that they couldn’t when you asked.

          • Sainter Dad on 03/01/2019 - 07:39

            @JoeAC: That was my thought - if they could give a logical explanation I am fine paying a little extra per month if they are building a buffer - but I bet if I miss a payment they will be on me like a fly on stink!

  • chumlee on 03/01/2019 - 07:43

    Have you read through your contract & other paperwork that came with it?

    • Sainter Dad on 03/01/2019 - 07:46

      Of course - but it does not make reference to any additional fees - and the loan balance reduces at the full amount - so it is just confusing why they are scheduling a loan to finish 12 - 20 months earlier than the actual term.

  • Candour on 03/01/2019 - 09:08

    you can complain to the body which took over FOS - FOS was poor. not sure how good the new ones are. glib answers are waht the royal commission pointed out was wrong when they robbed customers.

    • Sainter Dad on 03/01/2019 - 09:12

      Thanks - not really looking to 'rock the boat' but some clarification should be easy enough to get - I was just wondering if anyone else had encountered this situation!

  • jhmtaylor on 03/01/2019 - 10:22

    I do not think it would do any harm bringing to the bank's attention the difference between their calculator and your loan and ask for an explanation. They do make mistakes and if an error has been made they would prefer to know about it sooner because remedying problem that goes back years is very time consuming and expensive.

    • Sainter Dad on 03/01/2019 - 10:31
      +1

      I agree - thats why I bet the bank manager a bottle of Moscatto if they are correct - incentivize the issue!

  • dp1 on 03/01/2019 - 10:49

    I'm glad it's not just me that finds the calculations from the bank hard to explain. With my previous loan the calculated interest varied depending how much there is in the redraw. Refinanced 8 months ago to another bank and the interest amount is the same every month regardless of the redraw balance. The only time it changed was when the rate rose by 10 basis points. 400k loan, redraw balance varied $30k to $75k,you would expect to see a 10% lower interest bill by having 10% of the balance in the redraw?

    • Sainter Dad on 03/01/2019 - 13:39

      I would definitely look into this - it seems that they are not linking your offset account.

  • [Deactivated] on 03/01/2019 - 13:23

    It seems you are looking at many thousands of $$, so you should get it professionally checked.
    Somebody advertised doing this for a fee, and they claim they find many home loans in error, and claim back the discreopancy.
    Anyone remember which legal or otherwise firm does this?

    I checked mine after 12 years and had no problem.

    If you do catch the problem please let us know, this is the fun bit for us.

    • Sainter Dad on 03/01/2019 - 13:39

      Of Course - and there is also the outcome of the bet!

  • HeWhoKnows on 03/01/2019 - 17:15

    You should be asking the bank this question. NOT US!

  • miwahni on 03/01/2019 - 22:22

    Not sure if this is your answer, but… you mentioned that for quite some time you were making repayments based on a higher rate, even after rates went down, and you thought you were building a redraw facility but your loan doesn't have redraw available. So - if you were making higher payments, even if those payments aren't available for redraw, they still represent payments made in advance. If the bank is calculating your new repayment based on your current balance PLUS payments made in advance, would that account for the higher repayment you've been quoted?

    • Sainter Dad on 04/01/2019 - 09:28

      No - the higher repayments were for a previous scenario - at present I have pared it back to just making the appropriate repayments.

      • miwahni on 05/01/2019 - 11:39

        So you weren't making higher repayments at any time during the course of the loan? Well that's not the answer then. Sorry can't help further.

  • mortgagebroker on 04/01/2019 - 20:37

    Have you told the bank you only want to make the minimum repayments?
    Is the lender CBA? if not, who is it?
    What is the loan limit (loan without redraw)

    Bank systems are very stupid, see this often with CBA. At least you are paying more, I have seen examples of customers who were never paying enough and when it gets corrected it can cause a lot of problems.

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