Monthly Rest Vs. Daily Rest Interest Calculation

Nowadays most banks calculate your mortgage interest on daily rest basis. Years ago, monthly rest interest is a norm.

You are advised to get a home loan which the interest is calculated on daily rest basis. But most people don’t really understand what is the advantage. This post is to explain the difference to you in simple terms.

Example:

You are serving RM1000/month for a home loan. The outstanding loan amount on 1st of April is RM100k. On April 20, you make a capital repayment of RM30k, and reduce the outstanding loan to RM70k.

daily rest vs. monthly rest chart

Daily rest versus Monthly rest interest calculation

Daily Rest

Your loan interest will be calculated based on the previous day’s outstanding balance.

If based on daily rest interest calculation, you will pay lower interest charge on 20th April onwards.

Monthly Rest

Your loan interest for the current month will be calculated based on the previous month’s outstanding balance (which consists of principal and interest not paid, if any).

If based on monthly rest interest calculation, you will still pay interest for RM100k loan until 30th April.

More references:
Differences between monthly and daily rest
Daily vs Month rest – forum on Lowyat.

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13 Comments

  • sma

    Reply Reply April 23, 2010

    simple explanation and very easy to understand..i loike..:-)

  • Sayeed

    Reply Reply April 23, 2010

    Excellent article. Thanks.
    Simple guide to understanding the benefits.

  • David Koh

    Reply Reply April 24, 2010

    Nice :) That kind of cleared up the whole daily rest and monthly rest idea.

  • masz

    Reply Reply April 24, 2010

    Thank you for sharing this. It really helpful. Really easy for me to understand. :)

  • sherry

    Reply Reply April 24, 2010

    kc, may i know how bank calculate monthly repayment based on Loan Amount, tenure, and BLR? what is the formula?

  • Eric

    Reply Reply April 28, 2010

    Hi KC, thank you for the post. I don’t suppose you have a Microsoft Excel spread sheet to calculate the difference in actual monthly repayments (daily rest vs monthly rest).

    • KCLau

      Reply Reply April 30, 2010

      No, I don’t.
      Thanks for commenting.

  • Prince

    Reply Reply May 4, 2010

    Thanks for the explaination.
    I guess it goes the same way for savings account on monthly / daily rest.
    What I don’t understand is that, the interest rate calculation, some need to divide by 12 and some by 365. (The normal formula that I use is :

    Total = Capital + Interest
    = Capital + (Capital * Interest * Period) /100

  • jack

    Reply Reply July 15, 2010

    For daily rest, should the “interest on 100K” for the first 20 days be added to the 100K first before minusing the 30K to get the outstanding balance for the next 10 days?

    First 20 days -> 100K + interest on 100K – 30K = Balance A
    Next 10 days -> Balance A + interest on Balance A = Balance B

    This balance (B) will be different from simply taking 100K + Interest on 100K + Interest on 70K.

  • Latiffi Aziz

    Reply Reply December 25, 2011

    very helpful indeed. thanks KC. :)

  • naim

    Reply Reply January 2, 2014

    Very straight forward. love the diagram.

  • Rei

    Reply Reply June 13, 2014

    Excellent schematic! Easy to understand and straightforward explanation.

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