First Mortgage | Mortgages | Discussion forum

Lg419 said
Hello,

I got a mortgage in November for the first time in my life and am having trouble determining how they determined the first interest calculation. Mortgage facts are below:

Principal amount: $268,000.00
Annual interest rate: 1.84%, Interest is compounded semi annually and charged both when a transaction is processed and at the end of each month.
APR: 1.865%

Payments are bi-weekly, starting Dec 4, 2020. Bi-weekly payments total $582.52 ($512.30 instalment of P&I + $70.22 Insurance)

Amortization: 25 years, 5 years fixed
Date of advance: November 6, 2020

My mortgage paperwork states that the first payment of $335.50 is due on Dec 1, 2020 and consists of interest only from the date of advance and the start date of the term.

My question is: how did the bank calculate the $335.50 in interest?

Thank you!  

Good question! It should just be calculated on the daily closing balance of the mortgage at the prevailing annual interest rate divided by 365 days (366 in a leap year), much like GIC interest rates are calculated.

If looking at an amortization table showing the payments and the declining balance outstanding with every payment, you just need to keep in mind that as you pay down your mortgage, there's less principal outstanding.

I'm not quite sure if this is exactly what you're looking for, but in short, I'd probably just recommend sticking to amortization calculators and let them do that for you.

Edit: Your interest payment will always be larger at the start of your mortgage, as you have more principal outstanding. As you pay more of it down, you will notice that more of your payment goes towards your principal, and as your mortgage is nearly paid off, very little goes to interest. It's kind of deflating at the start of one's mortgage knowing that probably like 90% of their biweekly payments go towards interest, but when you think about it more simply you're essentially in a rent-to-own relationship with your "landlord" (i.e., the bank or mortgage company), who returns a small sliver of equity in the home with every payment. With every payment, it returns a larger sliver of equity, and, near the end of your mortgage, your "landlord" keeps very little for itself. At the end of your mortgage, your "landlord"'s name is kicked off the title for the property, and you no longer have a "landlord" as you own the property outright.

Hope that helps,
Doug

Let the FI do the calculations. Have a great day.

Lg419 said

… I am interested to see how you got to your conclusion that the mortgage amount is actually $268,400. I'm just looking through my paperwork now: on the main page it shows principal amount of $268,000.00. However, there also shows a $300 appraisal fee (which I paid before I even got this house), a $100 discharge fee, and a $400 transfer fee. Not sure what a "transfer fee" is but perhaps that's where the missing $400 is coming from?
…

Some of the other possibilities just don't look likely:

$335.50 = $268,000 x (1.84%/2) x 25.03731 days / 184 days
$335.50 = $268,000 x (1.84275%/2) x 25 days /184 days
$335.50 = $268,000 x 1.84% x 24.9012 days / 366 days
$335.50 = $268,000 x 1.84% x 24.8332 days / 365 days
$335.50 = $268,000 x 1.84% x 24.8502 days / 365.25 days

The most likely one is

$335.50 = $268,400 x (1.84% / 2) x 25 days / 184 days

It could be the $400 transfer fee that got added to the mortgage principal. It could also be more than one other items that total $400 as well.

This is just a good theory for now. Check with the bank to find out exactly how much was advanced from your mortgage account around closing.

Something could have happened last minute when the lawyers met to trade keys, cheques, and liens. The cheques from your lawyer and the bank's lawyer could have ended up $400 short for some reason. Rather have the closing fail, the bank's lawyer may have advanced another $400 from your mortgage to complete the closing.

Lg419 said
My "annual mortgage summary" in my online banking for the mortgage also states the following:

Opening Balance (Nov 6, 2020): $0.00
Funds Added (during this period): $268,000.00
Total Interest (includes additional charges)*: $415.01
Principal & Interest Payments: $1,024.60-
Principal Prepayments: $0.00
Additional Charges: $0.00

Closing Balance (Dec 31, 2020) $267,390.41
*Total Interest does not include the interest charged before your mortgage term began, a total of $0.00.

Using my Excel spreadsheet amortization table, I also don't understand how they calculated $415.01 in total interest up to Dec 31, 2020. I assume that that interest amount does not include the initial interest charge of $335.50.  

You have well defined the mortgage terms. Norman1 determined how much interest is paid December 1. There are many conditions that we do not know the exact calculation. Best to get an amortization printout from FI.

Lg419 said
Thank you @topgun @Norman1, again for those calculations. Very helpful.

Perhaps a full, detailed amortization schedule would be helpful.

If I asked my bank, would they provide something like that?  

Depends on the representative you get, really. When I worked in the bank, I would have no issues with generating these statements for customers when they'd request them. For most purposes, though, a generic amortization table available freely online, as Norman1 suggests, will be sufficient. 🙂

Cheers,
Doug