Mortgage interest rates

Interest-Ed

Apologies for my earlier rambling message.

Can anyone advise on the difference between interest calculated daily and interest calculated monthly.

MarkyMarkD

For most people, the impact of the two is very similar.

If you get paid at the end of each month, and pay your mortgage at the end of each month, there is no advantage at all to daily interest.

If you get paid at the start of each month (say) and pay your mortgage at the start of each month, you'll lose a month's interest on each payment under a monthly interest system. Given that a month's interest on each payment is less than £3 on a £500 payment (£500 x 6% = £30 a year = £2.50 per month), it's equivalent to a lot less than 0.1% on the mortgage rate.

If you are paid weekly (and would pay the mortgage weekly) or you are prone to making sporadic payments at times other than the end of each month, then the loss of interest will be either slightly more or slightly less than the figures I quoted above.

But in most cases, it boils down to a lot less than 0.1% per month.

So, I would choose the best mortgage based on headline rate, and THEN (and only then) consider if there's another mortgage which is almost exactly as good but has daily interest - and only pay 0.1% at the very most extra for the privilege.

Incidentally, the argument over annual and monthly interest breaks down in much the same way - the impact is NOT that great at all, for repayment borrowers, and is NIL for interest only borrowers unless they choose to repay lump sums not at the year-end.

lisyloo

Answered on the other thread.

If the mortgages were identical then daily would be better.
However it's very unlikely they will be identical so you need to compare other factors as well.