Calculating daily interest is similar to figuring out monthly or weekly interest. The only difference is that the rate is divided by the number of days instead of the number of months. When your mortgage is calculated daily, instead of monthly, you pay a slightly different amount of interest on your monthly statements because the number of days in each month varies. If you make a principal payment in the middle of the month, it'll immediately change the dollar amount of your interest payment for the rest of the month.
TL;DR (Too Long; Didn't Read)
In order to calculate the amount of interest that your mortgage is accruing on a daily basis, you will need to partition your annual interest rate into 365 equal sections. This will then allow you to determine the specific dollar amount of interest that is being added to your principal balance.
Check Your Remaining Principal
You can find this information on your mortgage statement. The principal balance is the amount you borrowed, less the amount you have paid back. You are charged interest only on the amount left on your loan.
Find Your Daily APR
Your annual percentage rate, or APR, is also listed on your statement. For example, if the interest rate is 8 percent, divide 8 by 365, which equals 0.022. This will give you the daily mortgage rate, since their are 365 days in a year.
Divide the result by 100 to convert a decimal. For example, divide 0.022 by 100 to get 0.00022, the daily rate in decimal form.
Calculate the Daily Interest
Multiply your principal balance by your daily rate in decimal form. Assuming a principal balance of $234,000, the daily interest on our sample loan is $234,000 times 0.00022, which equals $51.48. This is the amount of money you'll pay in interest each day while your principal is at its current balance. It'll change to a lower number the next time you make a principal payment.
Calculate the Monthly Interest
Multiply the daily interest by the number of days in your payment period to calculate the interest that will be charged for the month. If it's February, then the interest cost of the sample loan is 28 times $51.48, which equals $1,441. You may get a more accurate result by using an online calculator, as decimals won't be dropped or rounded as they usually are when calculating manually.
Although it may seem like these small numerical details won't make much of a difference, it is important to remember that even the smallest of numerical adjustments can result in significant changes over a lengthy span of time, such as a year.
- You may get a more accurate result by using an online calculator, as decimals won't be dropped or rounded as they usually are when calculating manually.
Billie Jo Jannen is a politics and lifestyle columnist in rural San Diego County and a senior copy editor for Demand Media. Her writing and editing career spans 23 years, and she specializes in border and environmental affairs. Jannen's eclectic education includes engineering and horticulture, and she represents the Rural Economic Action League in regional economic development planning.