What is the difference between these two mortage calculators

Hus_87 · Joined: 29 Nov 2007 Posts: 2

Ok i have two mortgage calculator web sites.

http://www.bbc.co.uk/homes/property/mortgagecalculator.shtml#your_results

http://www.mortgages.co.uk/calculator/mortgage_calculator.html

When i input the same values, i get a different answer. The one from BBC is slightly higher. Is this because it uses compounding and the other one doesn't. I am just curious to find out. Any help is welcomed.

Example
Amount: £20,000
Repayment Period: 5 years
Interest Rate: 8%

BBC Result:
Repayment Mortgage: £417
Interest Only: £133.33

Mortgages.co.uk Result:
Repayment Mortgage: £405.53
Interest Only: £133.33

Thanks in advance,

m2c · Joined: 03 Aug 2005 Posts: 743

From the numbers given, it appears BCC takes the rather unusual position of using ANNUAL compounding and dividing the full annual (theoretical) payment and then dividing by 12 for the monthly payment.

The more standard method is to use “little i” (the annual interest rate of 8% divided by 12 to reflect monthly reduction in the calculated interest amounts each month) with a 60 month term (5 x 12) to produce the monthly payment. BCC apparently uses “big i” (the annual rate of 8%) with a term of 5 years to obtain the annual payment needed (5,009.13) and then divides by 12 to get the monthly amount of $417. Does this mean BCC is not reducing the amount interest each month? Presumably not. Bad for the borrower; good for the bank.

Pmt = i/(1-[1+i]^-n)

Hus_87 · Joined: 29 Nov 2007 Posts: 2

Thank you very much for your help. I will look into this :)

robert_tito · Joined: 30 Apr 2008 Posts: 24

Nice job! It's really nice link that you have shared with us.
Thanks!

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