There are essential two ways a lender
can charge interest. One is by annual review, which will
be dealt with on the next page and the other is Monthly
rest and it is this way we will explain here on this
page.
Monthly rest is were one twelfth of the prevailing
annual interest rate is calculated against the debt each
month. This means that if the prevailing rate is 5.99%
pa your outstanding mortgage is charged 0.499% each
month until the rate changes.
Please note the graph below is not accurate and is for
illustrative purposes only.
The benefit to this is two fold.
If rates are falling you will reap the benefit as soon
as the mortgage company drops their rate. However, the
downside to that is if they are
rising you will feel the impact there and then.
The other benefit is if you have a repayment mortgage it
will be reducing slightly every month, as it is the
outstanding mortgage that is being charged then as it
reduces you pay less interest on the lower balance. The
savings each month are nominal however on a 25 years
mortgage these savings add up and become quite
significant.
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