The diagram below provides an illustration of the difference between “daily rest interest” and “monthly rest interest” calculation.
What is Daily Rest Interest?
Interest is calculated based on the previous day’s outstanding balance. When you make a partial repayment on a daily rest home loan, interest calculated at next of day is immediately based on the new remaining balance.
What is Monthly Rest Interest?
Interest will be calculated based on the previous month’s outstanding balance. When you make a partial repayment on a monthly rest home loan, interest will only be computed based on the new balance at the start of next calendar month.
Daily Rest vs Monthly Rest Interest?
Interest computed on a daily rest would attact the lowest interest repayments. A daily rest interest computation would generally save you about $20 dollars per annum (Based on $100,000 / 1% interest rate / 20 years loan tenure). Interest on a yearly rest attracts the highest interest repayments.