Annual interest rates

A repayment mortgage is simple and easy to understand. Each time you make a monthly payment, you reduce the total debt you owe. Be aware that lenders who calculate interest on an annual term do not give you justice for this. You are basically paying interest on money that you no longer owe as it is not until the end of each year that your interest payments are adjusted and your debt is recalculated. A daily or monthly interest calculation is far more flexible and much fairer too. You only pay interest on money that you owe as it is checked every day or month.

It is important that you understand the lenders method of calculation if you want to pay extra towards your mortgage every month. If an annual interest system is used then you wont get any credit for regular over payments until the end of the year. It is far safer, and cheaper to put these over payments into a personal savings account and make a lump sum payment at the end of the year.

Questions to ask your lender concerning Annual Interest Rates: -

1. What interest rate calculation method do you use?
2. What is the minimum lump sum payment I can make?