My mortgage document 1999 says my interest rate is 8.34 per annum. Nothing about ” Simple Daily Interest” ???

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Can anyone tell me why it took almost 10 years, and 6 or more service tranfers to find this out??

Credit, mortgage, finances, loans

1 Comment
  1. Reply
    May 4, 2011 at 1:24 am

    No need to fear. Even though your annual interest rate is 8.34%, you know that it does not amortize once per year. We think of loans amortizing on a monthly basis (360 monthly payments for a 30-year loan). The Simple Daily Interest enables the mortgage company to track the breakdown of the interest in case it has to track on a daily basis. For example, if you closed your loan on June 20, then you had to pay 10 days of interest for June (rather than being charged for an entire month).

    I know it sounds shocking to think that interest is accruing every day. But the daily interest rate for an 8.34% loan is 0.0228493150684932% per day (8.34%/365 days per year). If your principal balance is $ 300,000, that comes out to about $ 68.55 per day. If you multiply that by 31 days, it comes out to $ 2125 per month of interest (which is probably VERY close to what your amortization schedule says).

    Just for fun, I calculated (using a rudimentary Amortization Schedule on Excel) the difference between amortizing a loan on a monthly basis (360 months) versus a daily basis (10,950 days) with a constant monthly payment.

    I assumed a principal balance of $ 300,000 and 8.34% interest. The monthly payment for the monthly accrual was $ 2,272.81. The monthly payment for the daily accrual was $ 2,280.33 (a difference of less than $ 8 per month). The total interest paid over the 30 years for a monthly accrual is $ 518,210. For the daily accrual, it is $ 520,927. That’s a difference of just over $ 1,000 over THIRTY YEARS. (Probably the price of a movie ticket in 2028.) If you factor in the inaccuracy of my Excel formulas, I’ll bet the difference would be even more negligible.

    Hope that helps!

    Good luck!

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