The calculation of daily interest on a mortgage is similar to the calculation of monthly or weekly interest; the difference is that the division is by the number of days instead of months. The interest on daily mortgages usually changes slightly.
Understanding how the calculation is done is essential to knowing your mortgage payment; this allows you to organize your finances better and avoid having unexpected payments due to miscalculations.
How to calculate the daily mortgage interest?
The first step is to verify your remaining capital; this can find in your mortgage statement. The first balance you see is the amount you borrowed from the lender minus what you have paid back.
You only have to pay interest on the amount you subtract from your loan. When you understand this, you need to know your daily APR. To get it, find your APR on your mortgage statement and divide the percentage by 365.
For example, if the rate is 8%, you must divide eight by 365, indicating that the daily APR will be 0.022. To get the total interest, you only need to multiply the principal balance by the daily rate transformed into decimal.
You must divide 0.022 by 100, which will give 0.00022, that is, the daily APR in decimal format, and that is what you have to multiply by the principal. Let’s say the principal is $234,000, and we multiply it by 0.00022, then you have an interest of $51.48.
That will be the amount you have to pay daily as long as that is your principal, every time it changes, you must do the same multiplication to get the new amount.
Ways to save on mortgage loan interest
When you look at your mortgage loan interest, you may find that it is higher than expected. To find the best ways to save, you can apply some of the following solutions:
Start making additional repayments
Whenever you can make payments above the minimum amount, you will get a considerable principal reduction; therefore, interest charges are also reduced. Of course, you must ensure you do not have additional charges for doing this.
Make frequent payments
You usually have the option of making monthly, biweekly, or weekly payments, but it is advisable to opt for a frequent payment schedule because it will help you pay less interest and pay off the debt more quickly.
Interest calculations are almost always done daily, and when you frequently pay the balance to calculate, the interest will be lower.
Opt for a matching account
When you have a mortgage loan with an offsetting account, you can use it to your advantage to pay less interest. This type of account is for transactions linked to the loan and will offset your mortgage loan balance.
In simple terms, it means that you only pay the balance of the loan and the amount in your offset account.
Choose a loan with a shorter term
The less time you have to pay the mortgage loan, the less the interest will be; however, the payments will have to be higher to catch up on the estimated date. Before doing this, you should look at all available alternatives.