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.
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.
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.
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.