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Daily Interest Formula:
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Daily interest calculation determines the amount of interest accrued each day on a mortgage or loan. This method is commonly used in mortgage calculations where interest compounds daily.
The calculator uses the daily interest formula:
Where:
Explanation: The formula calculates the daily interest amount by dividing the annual interest (principal × rate) by 365 days.
Details: Understanding daily interest helps borrowers track interest accrual, make informed prepayment decisions, and better understand their mortgage amortization schedule.
Tips: Enter the outstanding principal amount in dollars and the annual interest rate in decimal form (e.g., 0.05 for 5%). All values must be valid positive numbers.
Q1: Why calculate interest daily instead of monthly?
A: Daily interest calculation provides more accurate results and reflects how most modern mortgages actually accrue interest, leading to more precise payment calculations.
Q2: How does daily interest affect my mortgage payments?
A: Daily interest means your interest accrues every day based on the current principal balance, which can save you money if you make extra payments between scheduled payments.
Q3: What's the difference between decimal and percentage rates?
A: Decimal rates are percentage rates divided by 100 (e.g., 5% = 0.05). The calculator requires decimal format for accurate mathematical operations.
Q4: Does this calculator account for leap years?
A: This calculator uses 365 days for simplicity. Some institutions may use 365.25 or actual days per year, but 365 is the standard convention.
Q5: Can I use this for other types of loans besides mortgages?
A: Yes, the daily interest calculation formula applies to any loan or debt instrument that accrues interest on a daily basis.