How is interest calculated on my home loan?

Interest is calculated daily and charged on the last day of each month. To calculate the interest you will need to determine the outstanding balance of your loan account at the end of each day and note the number of days. Where a repayment has been applied during the month, do the same using the new balance. Take each balance and multiply by the annual interest rate, divide by 365, and multiply by the number of days.

Scenario:

Loan balance of $500,000 on 1st January at 4% interest
Repayment made on 15th of January of $4,000 > New Balance $496, 000 from the 15th January.
Closing Balance as at 31st January $496,000

Calculation:

Balance of $500,000 x 4.00% ÷ 365 days x 14 days = $767.12
Balance of $496,000 x 4.00% ÷ 365 days x 17 days = $924.05
Total Monthly Interest - $1,691.17

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