Borrowers urged to consider mortgage interest basis
Nov 28, 2006
Borrowers have been advised to consider whether interest is calculated on a daily, monthly or annual basis when shopping around for a mortgage.
Halifax said that looking beyond the headline rate was important when looking for the best deal and that daily interest was something to watch out for.
When interest is calculated on a daily basis, any payments made are made directly on to the account, immediately reducing the debt and the amount of interest chargeable, the building society said. This means that the overall amount paid back by the end of the loan is reduced, saving the borrower money on their mortgage, whether it is a fixed-rate mortgage, standard variable rate or another type of mortgage.
If interest is calculated on an annual or monthly basis, however, the lender will work it out based on the total outstanding balance at the end of the previous year or month, so any payments made during the year or month will simply sit on the account until the interest is applied, Halifax said. Halifax also said that consumers' mortgages should be offering them the best possible long-term value.
Daily interest saved customers a lot of money over the life of their mortgage and should not be overlooked by people looking at which deal is best for their circumstances, they added.
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