Mea culpa....

On Jun 25, 2:34 pm, Formula Fred
wrote:
I am trying to find a formula that will give me really accurate compound
interest calculations, where interest is calculated daily and added monthly.
I have used A=P(1+r) to power n, where A=accumulated sum, P is principal
and r=interest rate expressed as a proportion and n is the term.

On Jun 25, 11:27 pm, Formula Fred
wrote:
This should be the correct formula for calculating mortgage interest

On Jun 26, 2:02 am, I wrote:
Not at all! It is a formula for computing the effect of compounding
interest in a savings account.

Perhaps I should not have been so dismissive. If your formula is
intended to compute the balance, including interest, at the end of a
__period__ before applying the payment, and n is the number of days in
the __period__ (not "the term", which I interpreted to mean the term
of the loan), then your formula is merely a different interpretation
of "interest calculated daily and added monthly".

At issue is __how__ interest is calculated daily during a payment
period. That should be specified in the loan agreement.

Your formula reflects compounding daily. My formula reflects simple
interest.
In my example (15-year loan of $100,000 at 6% paid monthly), the
difference per period is very small -- $1.02 to $1.35 in interest.
That might explain why you believe your formula needs only "slight
refinement".

I have seen both used methods for savings and money market accounts.
I have only seen the latter method (simple interest) used for loans
that compute interest daily.

If mortgage interest were compounded daily, either the payment should
be computed differently, or the last payment might be larger than the
others, which should be disclosed in the loan agreement. In my
example, the last payment would be about $1039, compared to $844
normally. Alternativey, a monthly payment of $845 (rounded to the
dollar) would be sufficient to avoid a larger last payment.