Abbey National Flexi mortgage - How do they charge Interest ?

You shouldn't. The stated 5.25% or 5.50% are almost certainly nominal annual rates, with interest actually charged monthly but calculated on the daily balance.

I think it's charged in arrears as it should be.

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As I understand it, the "interest due" charged on 02.08 is that due for the period ending on 02.08, and hence commencing on 03.07; I note that they specify (below) that the rate applies from 03.07.

There is incomplete information on this statement to let us see what changes in balance might have applied between 03.07 and 31.07, but if it was 92060.93, I'd expect interest due to be 92060.93 x 0.0525 / 12, which is 402.76, I cannot explain the 61p discrepancy.

91463.08 x 0.0525 / 12 = 400.15 -- Bingo! 90863.23 x 0.0550 / 12 = 416.46 -- Again, I can't explain the 63p discrepancy, but the undercharge seems in part to make up for the overcharge on 02.08.

Perhaps it's to do with "clearing" delays on the DDs. Four days' interest on 1000.00 is roughly in the right ballpark.

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"Picho Pichev" wrote

In message , Ronald Raygun writes

Its because the rate changed on 3/9 but the 'interest month' started on the 2/9. So there was 1 day @ 5.25%

90863.23 x .0025 / 365 = 62.23p

"Tim" wrote

92,060.93 91,463.08 90,863.23 90,279.06

OK then, I'll doe the next one as well :-

1 day at 5.25% and 29 days at 5.5% averages at 5.4917%. (5.4917% / 12) x 90,863.23 = 415.83.

In message , Picho Pichev writes

I agree that they appear NOT to be charging 'daily' but 'monthly' as Ronald Raygun's (I taught him everything he knows) post points out because they are dividing 5.25 by 12 not by (365 times the number of days), BUT they do take account of one day at 5.25% as my reply to RRs post shows.

No, but I can see how you thought this because they show the balance at the start of the month, whereas it has actually been that balance since the 2nd of the previous month.

I.e.

02.08.2004 Mortgage Loan Balance 91,463.08 02.09.2004 Mortgage Loan Balance 90,863.23 02.10.2004 Mortgage Loan Balance 91,279.06 04.10.2004 Mortgage Loan Balance 90,279.16

In message , Tim writes

Well Done,. Only a pretend bank that was an ex Building Society would do it like that! But they do!

You may be right. It seems odd, though, to charge interest on the first day of the next month instead of on the last day of the current month. It's also more common practice (isn't it?) to change interest rates on charging period boundaries, not a day later.

There are two discrepancies to explain. Your explanation for the

2nd would suggest that the 1st might have a similar reason, namely an interest rate change on 3rd July. But it would have had to have been a downward change which, given recent rate history, seems unlikely. It would be useful if Picho could dig out his previous statement to supply further details.

In message , Ronald Raygun writes

May? How dare you!

Two things spring to mind. The first is that we are dealing with AbNat, and you cant expect anything sensible form this trumped up Building Society.

The second is that, historically, interest rate changes for banks could be on any day and at any time, and on one famous occasion, a few times during the day! (As an aside, I wonder if Mr Lamont was ever a director of AbNat?). Most lenders dfo not operate on a 'monthly' cycle.

Not really.

I think that when this does happen, it accidental as much as anything.

"Ronald Raygun" wrote

Here's a possible explanation :-

The real figures are 402.76, 400.15, 415.83. We agree all three. However, when the OP wrote their post, they inadvertently copied the first figure incorrectly - glanced at the correct figure, typed that then glanced at the (incorrect) penny figure (from the middle interest figure rather than the 1st one) & copied that.

Easy mistake to make?!!

IJust because the BOE base rate may chnage several times ina day, does implyu at all that an individual lending institutions would (or could). . Its extremely unlikely (vanishingly) that a high st lending institution, ie Barclays or Ab Nat etc, would change their rate several times during a day, for main 2 reasons;

1) Probably their IT systems wouldnt be able to do this. ('probably' as in 'probably the sun will rise tomorrow) 2) Even if they could, easier to just come up with single figure for the day based on an average.

In message , Tumbleweed writes

Well in my experience it only happened the once, and on that day the clearing banks DID announce the changes in their base rates throughout the day, its the only the last one that counts though. They can announce their base rates changes as many times as they like, but the guy with the keyboard only types it into the computer the once, after close of business.

Hello there

Here is again the full statement, I had removed the Capital entries earluer cause I thought they were irrelevant.

Thanks all for the help, finally is it that they take the APR figure, divide it by 12 and apply it to the ballance monthly ?

The bit where they do an 'average' of interest for 1 and 29 days in the month and then apply it is really weird to me, what it boils down to is that they aren't really doing the intererest on a daily bacis, are they ?

I wonder if that means that when you pay lump sums or take money out you should only do it on certain dates to not lose interest ?

Thanks

P.P.

Date Transaction Debits Credits Balance

01.05.2004 Opening Balance 101,851.21 02.05.2004 Capital repayment due 448.96 02.05.2004 Credit to capital 448.96 02.05.2004 Interest due 418.60 04.05.2004 Direct Debit - thank you 1,000.00 01.06.2004 Direct Debit - thank you 5,000.00 01.06.2004 Mortgage Loan Balance 96,269.81 02.06.2004 Capital repayment due 450.73 02.06.2004 Credit to capital 450.73 02.06.2004 Direct Debit - thank you 1,000.00 02.06.2004 Interest due 400.88 14.06.2004 Direct Debit - thank you 1,500.00 16.06.2004 Direct Debit - thank you 1,500.00 01.07.2004 Mortgage Loan Balance 92,670.69 02.07.2004 Capital repayment due 443.36 02.07.2004 Credit to capital 443.36 02.07.2004 Direct Debit - thank you 1,000.00 02.07.2004 Interest due 390.24 01.08.2004 Mortgage Loan Balance 92,060.93 02.08.2004 Capital repayment due 436.22 02.08.2004 Credit to capital 436.22 02.08.2004 Direct Debit - thank you 1,000.00 02.08.2004 Interest due 402.15 01.09.2004 Mortgage Loan Balance 91,463.08 02.09.2004 Capital repayment due 438.12 02.09.2004 Credit to capital 438.12 02.09.2004 Direct Debit - thank you 1,000.00 02.09.2004 Interest due 400.15 01.10.2004 Mortgage Loan Balance 90,863.23 02.10.2004 Capital repayment due 431.22 02.10.2004 Credit to capital 431.22 02.10.2004 Interest due 415.83 04.10.2004 Direct Debit - thank you 1,000.00 01.11.2004 Mortgage Loan Balance 90,279.06 02.11.2004 Capital repayment due 433.19 02.11.2004 Credit to capital 433.19 02.11.2004 Direct Debit - thank you 1,000.00 02.11.2004 Interest due 413.79 02.11.2004 Mortgage Loan Balance 89,692.85

Interest rate charged from 02.05.2004 until 02.06.2004 4.75% Interest rate charged from 03.06.2004 until 02.07.2004 5.00% Interest rate charged from 03.07.2004 until 02.09.2004 5.25% Interest rate charged from 03.09.2004 until 02.11.2004 5.50%

Total outstanding balance on the mortgage loan at 02.11.2004 89,692.85

I think they are indeed irrelevant.

Yes, so it would appear, except of course it's not the APR but the quoted annual rate. The APR is something altogether different as you'll have learnt if you've been following other threads here recently.

It's not really weird at all, and your conclusion does not follow from "boiling that down", although the conclusion looks from the data to be justified nevertheless.

However, if they did calculate interest on a daily basis, then you would expect them to take into account the fact that an interest rate change occurred part way through the month. In the absence of other changes to a balance, then if the prevailing monthly rate were (for example) 0.4% and then increased to 0.46% 10 days into a 30 day month, you would expect the effective interest rate during that month to be

(10/30)x0.4% + (20/30)x0.46% = 0.44%

but that's as a consequence of the underlying balance not changing. So yes, they are indeed "calculating interest on a daily basis", but that's not the same as what they want you to believe, namely calculating interest on the basis of the daily balance.

If they don't apply payments (in or out) to the balance immediately, then yes, that's exactly what it means. The optimum time to make a payment in would be just before the cutoff date each month at which they establish the balance upon which interest will be charged for that month, and similarly the best time to take money out would be just after that cutoff.

I wonder whether JB would cast his eyes over your figures again, but his assumption of the charging period running from the 2nd of each month to the 1st of the next, with split charging operating where the rate changes on the 3rd seems to be spot on (within a penny) for the interest amounts charged on 2nd Nov, Oct, Sep, and Aug, based on the balances noted in the statement for the 1st of each month (the day before the interest is charged, i.e. it looks as though the balance on the 1st is taken as though it had been the balance during the whole charging month, which doesn't make a lot of sense since it suggests that a payment-in late in the month is treated as if you had made it at the start, i.e. they're giving you more credit than you deserve).

**BUT** the earlier figures look rather odd and difficult to make sense of. However, your pay-in pattern towards the end is a steady £1000 each month whereas earlier it was more erratic, so you'd expect similarly erratic results in the interest.

The 02.07. interest figure of 390.24 is close (though not close enough for my liking) to 390.29 which is a month's interest at 5%pa on a balance exactly £1000 more than the indicated 92670.69 shown for 01.07.

The 02.06. figure of 400.88 is close to 400.86, a month at 4.75%pa on

101269.81, a whole £5k more than the balance shown for 01.06.

So it looks like the £5k pay-in on 01.06. did not influence the

02.06. calculation, but the £1k pay-in on 04.05. did.

It's not immediately obvious how the £3k paid in in the middle of June was treated.