# How to calculate the day and monthly interest rate

If you get a loan or mortgage you will have to pay interest. Based upon the yearly interest rate (is fixed on a daily basis) the monthly interest rate will be determined. This also tells the lender how much financial load you can handle within your joined income. Next to this it is also used in some exceptional circumstances such as right regulation imposing a daily interest as a penalty clause. How can you calculate the interest per day and month using the interest per year?

## Day interest for mortgage

If you get a new mortgage for buying your home or need a new one then you will have to deal with day interest. Every day the interest rates change for getting a loan as a mortgage product and so it is important to compare. The interest with that is the specific interest per year on that day. Getting a mortgage means that you contractual fix the interest rate for a certain period. This is different from the compensation that you have to pay as day interest which is calculated using the year interest.

## Means of force and compensation high loan

If the loan is very high the lender can demand that the interest is paid on a daily basis. Next to that it can be a means of force aka coercion within lax imposed regulation. If for instance a house has not yet been transferred to the new owner, a daily financial penalty can be demanded. This can be the day interest over the market value of the property. Especially within real estate rental this is used regularly as floors or a complete building needs to be completed. In that case damage can be great and so the day interest will be needed and calculated.

## Month versus year interest

If you close a mortgage then you do it against a certain year interest. That doesn't mean that your expenses are calculated on a yearly basis. You will need to pay interest every month so it is another interest rate. Many times the month interest is determined by dividing it by 12 but that is incorrect as interest has a growth factor. When you want to calculate the interest per period a power factor needs to be introduced. How can you calculate the interest rate per month or per day?

## How to calculate it?

Every day you see online the latest day interest rates for loans and mortgages for different contract periods as an interest rate per year. To know how much interest you need to pay per month or per day, how can you calculate that?:

- month interest rate = (1+i)^(1/12) – 1 with i = year interest rate;
- day interest rate = (1+i)^(1/365) – 1 or (1+i)^(1/366) – 1 if it is a bissextile year;
- year interest from month interest = (1+i;month)^12 – 1;
- year interest form day interest = (1+i;day)^365 – 1 or (1+i;day)^366.

With previous formula you can calculate for every period how high the real interest rate is. What if the year interest rate is 4% or 5% how much is that per month and per day:

- i;month 4% = 1,04^(1/12) – 1 = 0,3274%;
- i;day 4% = 1,04^(1/365) – 1 = 0,0107%;
- i;month 5% = 1,05^(1/12) – 1 = 0,4074%;
- i;day 5% = 1,05^(1/365) – 1 = 0,0134%.

Check always if the month interest rate of your loan or mortgage has been determined properly, especially if it is about a private loan. Dividing by 12 determining the compensation in incorrect.

Sluit je een lening af dan doe je dat obv de jaarrente, echter je betaalt per maand. Hoe reken je de hoogte van de dag- en maandrente uit en wat houdt het in?

Source: http://financieel.infonu.nl/diversen/114844-berekenen-van-dag-en-maandrente-hoe-doe-je-dat.html

Copyright: Informed aka geinformeerd

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- Category: Finance
- Created: 05 November 2014
- Written by Informed