Mortgage Calculation Differences?

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SUMMARY

The discussion centers on discrepancies in mortgage calculations between personal calculations and those provided by Canadian bank calculators. For a mortgage principal of $200,000 at an interest rate of 6.5% over 30 years, personal calculations using the formula Pr(1+r)^n / ((1+r)^n - 1) or the PMT function in Excel yield a monthly payment of $1264.14. In contrast, Canadian bank calculators consistently show a lower monthly payment of $1252.80. The difference arises because banks use the Annual Percentage Rate (APR), which accounts for compounding interest, rather than simple interest.

PREREQUISITES
  • Understanding of mortgage calculation formulas
  • Familiarity with Excel PMT function
  • Knowledge of APR versus simple interest
  • Basic financial mathematics
NEXT STEPS
  • Research the impact of compounding interest on mortgage payments
  • Learn how to use the PMT function in Excel for various loan scenarios
  • Explore different mortgage types and their calculations
  • Investigate the differences between APR and APY in financial contexts
USEFUL FOR

Homebuyers, financial analysts, mortgage brokers, and anyone involved in mortgage calculations will benefit from this discussion.

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
 
Mathematics news on Phys.org
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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