Exact Day Monthly Payment Mortgage
All financial calculators use the same algebraic formulas to perform amortization calculations. The “normal” blended monthly payment, information that a calculator spits out is based upon the year being divided into 12 equal periods. From this premise it follows that the monthly interest factor is constant each month. For an annual interest rate of 12% with monthly compounding, the monthly interest factor is .01 (1%) each and every month. At the end of each month .01 is multiplied by the outstanding balance to arrive at the interest cost for the use of the money for that month.
A “normal” blended monthly payment is shown below this line. Note how the interest portion of the blended payment is exactly $1000 (arrived at by .01 x 100,000).
If the Lender uses the 365 year exact day monthly method (choose 365 days per year in the MORTGAGE2 PRO software) the amortization schedule will appear as shown below;
This 365 day method uses the exact number of days between payments to calculate the monthly interest factor each month, which in turn is used to calculate the interest for that month. The only way to verify that the Lender is using this method is to ask for a schedule and look to see if the interest portion of the payment varies widely each month. In comparison, the 360 day schedule will have the interest portion continuously declining each month . The CALCULATOR shows the same information for the 360 day year as it does for the 365 day year. The only difference between the two screens is that the SPREADSHEET has its monthly interest factor based upon the value in the Days Per Year box of the CALCULATOR, therefore it follows, the Spreadsheet Interest must be different than the Calculator Interest.
For the person that is into numbers, below is an example of how the exact day monthly interest factors could be arrived at using the SPREADSHEET programs positive or negative prepayment feature.
After rounding they agree with the table below