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Mortgage repayment formula

  • 14-06-2022 2:15am
    #1
    wayne0308
    Registered Users, Registered Users 2 Posts: 428 ✭✭


    Hi,

    My mortgage terms give a formula to calculate the charges that would come from paying a mortgage off early during a fixed rate period. The formula itself is simple, however I am confused with one of the terms. The formula is (copied directly from documentation):

    C = A x (R% - R1%) x D / 365

    Where:

    “A” = the amount repaid early (or the amount which is changed from the fixed rate to a new rate) averaged from the date of early repayment (or rate change) to the end of the fixed rate period to allow for scheduled repayments (if there are any) and interest charges.

    “R%” = the annual percentage interest rate which was the cost to us of funding an amount equal to “A” for the originally intended fixed rate period.

    “R1%” = the annual percentage interest rate available to us for a deposit of an amount equal to “A” for a period equal to “D”.

    “D” = the number of days from the date of early repayment (or rate change) to the end of the fixed period


    I am not understanding the language describing "R1" , maybe it is the mention of the word deposit that is confusing me. For some other banks (I checked AIB and KBC) the formula is the same, where "R1" is generally quoted as the interest rate that would be applied to the amount "A" if the fixed term was to be begin now and continue to the end of the original term. For example, if I originally had a 5 year fixed rate, and I have 2 years left, "R1" would be the current rate for a 2 year fixed mortgage.


    Can you confirm that this is what is meant above?


    Thanks,


    Wayne.



Comments

  • #2
    Bank of Ireland: Eve
    Closed Accounts Posts: 309 ✭✭Bank of Ireland: Eve


    Hi Wayne, thanks for your post here on Boards.ie.

    For the best advice and guidance on your query I'd advise contacting our Mortgage Team on 016113333 and one of our Mortgage Advisors can certainly discuss this with with you further.

    Thanks, Eve



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