I'm working on a small program to calculate, among other things, mortgage/credit repayments. Searching the internet I got what appears to be the typical repayment formula.
principal 100,000 at 2% over 20 years, returns a monthly repayment of 505.88 using any online/Excel calculator.
However, I live in Germany and my home loan repayment was calculated in a different way:
payment = ("Tilgung %" + nominal interest rate) / 12 * principal
Tilgung is translated roughly as "repayment" in this case and is always given as a % by the bank. In my case the Tilgung is 4% and plugging in to the formula, the repayment is 500:
(0.04 + 0.02) / 12 * 100000 = 500
However, running the above through Excel, I found that roughly 245 payments are needed to complete the loan, vs the 240 needed for the above amount.
Does anyone know if there an official definition of this formula? It is clearly easier to memorize and work out repayment using any pocket calculator, but I find it surprising the banks use it to recalculate the repayment.