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Daily V monthly interest?

BACKFRMTHEEDGE
BACKFRMTHEEDGE Posts: 1,294 Forumite
in Mortgages & endowments
Can someone explain to me what the advantage is of having interest calculated daily as opposed to monthly? :confused:
A journey of a thousand miles begins with a single step

Savings For Kids 1st Jan 2019 £16,112

Comments

  • lisyloo
    lisyloo Posts: 30,113 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Yes.

    Let suppose that as of 1st April you have a mortgage of £100,000
    and on 2nd April you make your repayment which leaves the total at £99,000.

    If you have monthly interest then you will pay interest on £100,000 for the whole month of April (assuming the balance of 1st is used).

    If you have daily interest you will pay interest on £100,000 for 1 day and interet on £99,000 for 29 days.

    Clearly the later is better.

    It does depend though on how your payment day fits in with the day used for the calculation.
    The example I gave was bad, but if you paid on say 30th of the month and calculations were done as of the 1st of the month, then it would be nowhere near as bad, so it is very important to align your payments correctly.
  • BACKFRMTHEEDGE
    BACKFRMTHEEDGE Posts: 1,294 Forumite
    Thanks alot. That's really helpful. I'm going to look into this as my mortgage is coming up for a change in June. Thanks again. :money:
    A journey of a thousand miles begins with a single step

    Savings For Kids 1st Jan 2019 £16,112
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