Mortgages/ Helocs and payment calculations

[jIM_Ohio]

We have a 30 yr fixed loan (in year 3) which is 5.75%.
We also have a second mortgage (in year 3) which is 50k at 7.5%. The payment is about $389 and we send $400 each month.

I was just offered a deal from a bank to get a 4.24% Heloc.

By my math, we could have the Heloc paid offin 166 payments making the same payment we are making now (which would take 360 months). I used an ammortization schedule downloaded from

http://office.microsoft.com/en-us/templates/results.aspx?qu=ammortization+schedule&av=TPL000

to reach that conclusion.

In about 22 months we can make a larger payment of $1100 and get loan paid off in 66 months total (5.5 years). The $1100 would then be allocated to a new car fund, private school for kids, and some after tax investments.

However my ammortization schedule did not match the payment in the ad the bank sent.

Bank advertises 4.49% (prime-.51%) 50k LOC payment is $190.67
My ammortization schedule with a 4.49% interest rate has first month's interest at $187.08. Obviously I am missing something for how bank calculates interest on a HELOC.

another .25% comes off of interest rate if payment is taken from my checking account at same bank.

Anyone care to chime in on the math side of this?

[JinCO]

Jim,

I just checked my bill to see if I could figure this out. We switched to a HELOC this last January to lower our interest rate so that we could accelerate the pay off. Our APR just dropped to 3.99. I looked at a bill from a few months ago to check the math.

I can't seem to make the numbers work. It looks like they translate the APR into a daily periodic rate.

Here are the numbers from our bill a few months ago:
Beginning Balance: 72,424.61
APR = .049
Daily Periodic Rate = .00012268
Interest accrued during period = 264.43

When I try to do the math

72,424.61 * (.00012268) = $8.885051155 (Daily Rate)
$8.885051155 * 30 (days in bill period) = $266.55
This is close to the number they came up. The difference could be that the balance was lower after our monthly payment went through.

Here is the explanation on the bill:
Each day of the statement period, the principal balance is multiplied by the daily periodic rate to obtain the daily periodic interest charge. The daily charges for each day in the statement period are added to calculate your statement finance charge. The daily periodic rate may vary.

[boosami]

Are you confusing APR and APY? APR doesn't take into account compounding interest, while APY does.

[jIM_Ohio]

APR is what is on the letter I am reading now.

Prime-.51%

[simpletron]

it is being interest compound daily, not monthly like your calculator.

compound daily
apr = 4.49%
daily rate = 4.49%/365 = 0.0123013%
interest per day = 50000*0.0123013% = $6.15065
interest in a 31 day month = 31*$6.15065 = $190.67015

compound monthly
apr = 4.49%
monthly rate = 4.49%/12 = .3741666%
interest in a month = 50000*.3741666% = $187.0833

[jIM_Ohio]

it is being interest compound daily, not monthly like your calculator.

compound daily
apr = 4.49%
daily rate = 4.49%/365 = 0.0123013%
interest per day = 50000*0.0123013% = $6.15065
interest in a 31 day month = 31*$6.15065 = $190.67015

compound monthly
apr = 4.49%
monthly rate = 4.49%/12 = .3741666%
interest in a month = 50000*.3741666% = $187.0833

thx

Guess I need to download a different spreadsheet or make my own.

[maat55]

We have a 30 yr fixed loan (in year 3) which is 5.75%.
We also have a second mortgage (in year 3) which is 50k at 7.5%. The payment is about $389 and we send $400 each month.

I was just offered a deal from a bank to get a 4.24% Heloc.

By my math, we could have the Heloc paid offin 166 payments making the same payment we are making now (which would take 360 months). I used an ammortization schedule downloaded from

http://office.microsoft.com/en-us/templates/results.aspx?qu=ammortization+schedule&av=TPL000

to reach that conclusion.

In about 22 months we can make a larger payment of $1100 and get loan paid off in 66 months total (5.5 years). The $1100 would then be allocated to a new car fund, private school for kids, and some after tax investments.

However my ammortization schedule did not match the payment in the ad the bank sent.

Bank advertises 4.49% (prime-.51%) 50k LOC payment is $190.67
My ammortization schedule with a 4.49% interest rate has first month's interest at $187.08. Obviously I am missing something for how bank calculates interest on a HELOC.

another .25% comes off of interest rate if payment is taken from my checking account at same bank.

Anyone care to chime in on the math side of this?

If it is like most mortgages, the lender is adding in extra fee's through a slightly higher % rate. Legally, they can call it 4.49 but charge 4.62.

[simpletron]

jim, your current calculator wont be off by much, but will always be off by some. see in a 30 day month, you would have only be charge 184.52, which is less. the monthly calculator charges the same as every month have 30.41666666666 days. basically you will fail behind with 31 day months and catch up with 30 or 28 day months. the big difference is on the daily plan you get charge extra every february 29. In payoff time, your calculator will never be off by more than a month.

it isn't technical being compounded daily, it is interest is being accummlated daily but added monthly not daily like a daily compound. sorry for misspeaking there.

[bjl584]

My HELOC bill will vary from month to month because they are compounding the interest daily. In months with 31 days, the bill will be a few dollars more.