Daily Rest vs Monthly Rest

What is Daily Rest Interest

Interest is calculated based on the previous day's outstanding balance. When you make a partial repayment on a daily rest home loan, interest calculated at next of day is immediately based on the new remaining balance.

What is Monthly Rest Interest

Interest will be calculated based on the previous month's outstanding balance. When you make a partial repayment on a monthly rest home loan, interest will only be computed based on the new balance at the start of next calendar month.

Daily Rest vs Monthly Rest Interest

Interest computed on a daily rest would attribute the lowest interest repayments. A daily rest interest computation would generally save you about $20 dollars per annum (Based on $100,000 / 1% interest rate / 20 years loan tenure). Interest on a yearly rest attracts the highest interest repayments.

Prepayments

Different financial institutions may have different terms and conditions imposed on prepayments. Check the loan package to see if it allows you the flexibility to make prepayments or extra payments. Flexibility to make prepayments and paying interest on a daily rest basis, may help save considerable interest charges. It is also possible to start repayment of the loan during the construction of the house, thus saving more interest charges. What is important is to make prompt monthly repayments.

Partial Prepayments

Many borrowers find it useful to shorten the loan tenure by making partial prepayments with surplus savings or annual bonus. Partial prepayments can be in any amount. However, some financial institutions may impose restrictions on the amount to be pre-paid while others may impose a penalty. It is extremely effective in reducing the interest charges you would have to pay if prepayments are made during the early years.

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