1. What is Daily Interest Only Mortgage?

A daily interest only mortgage calculates interest on the principal balance each day, rather than using a monthly calculation. This method provides more precise interest calculations, especially for short-term loans or when making partial payments.

2. How Does the Calculator Work?

The calculator uses the daily interest formula:

Where:

• \( Principal \) — Loan amount in dollars
• \( Rate \) — Annual interest rate in decimal form (e.g., 0.05 for 5%)
• \( 365 \) — Number of days in a year

Explanation: The formula divides the annual rate by 365 to get the daily rate, then multiplies by the principal to get the daily interest amount.

3. Importance of Daily Interest Calculation

Details: Daily interest calculations are crucial for understanding true borrowing costs, especially for short-term loans or when making frequent payments. It provides more accurate results than monthly calculations.

4. Using the Calculator

Tips: Enter the principal amount in dollars and the annual interest rate in decimal form (e.g., 0.075 for 7.5%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why calculate interest daily instead of monthly?
A: Daily calculation provides more precision, especially for short-term loans or when making payments between standard payment dates.

Q2: How does this differ from compound interest?
A: This calculates simple daily interest. Compound interest would add the interest to the principal each period.

Q3: Should I use 365 or 360 days for calculations?
A: Most mortgages use 365 days, but some commercial loans use 360. Check your loan terms.

Q4: How can I calculate monthly interest from this?
A: Multiply the daily interest by the number of days in the month (typically 30 or 31).

Q5: Does this work for all types of loans?
A: This works for simple interest loans. Some loans may use different calculation methods.