How is mortgage interest calculated?

By THIS IS MONEY
Updated:

 

I have a mortgage with interest calculated on a daily basis. I would like to know what the calculation is that is used to work this interest out? SJ, Darlington

Drew Wotherspoon, of mortgage broker John Charcol, replies: An intriguing question! It depends on the lender but for the most-part they calculate 1/365th of the interest rate and apply it daily.

Other mortgage lenders, who calculate it monthly, just divide the year into 12 (giving 30.416 days) and charge the same for each month

Some charge daily interest but only compound that money onto the debt monthly which saves you a little more.

And just think: on a leap year, you're getting a bargain every day: the base rate works out as 0.01366% a day instead of 0.01369% a day.

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