Simple-Interest Mortgage

Filed Under:
Dictionary Says

Definition of 'Simple-Interest Mortgage'


A mortgage where interest is calculated on a daily basis, as opposed to a traditional mortgage where interest is calculated on a monthly basis. On a simple-interest mortgage, the daily interest charge is calculated by dividing the interest rate by 365 days, and then multiplying that number by the outstanding mortgage balance. If you multiply the daily interest charge by the number of days in the month, you will get the monthly interest charge.

Because the total number of days counted in a simple-interest mortgage calculation is greater than a traditional mortgage calculation, the total interest paid on a simple interest mortgage will be slightly larger than a traditional mortgage.

Investopedia Says

Investopedia explains 'Simple-Interest Mortgage'


There are pros and cons associated with a simple-interest mortgage. One con is that there is usually no grace period in a simple-interest mortgage. If a payment is made later than the first of the month, interest must be paid for the days after the first of the month on the entire loan balance. This is opposed to a traditional mortgage where a payment made during the grace period remains based on the principal balance amount as calculated for the first of the month.

One pro is that if you make blended payments before the due date on a simple interest mortgage, then the total amount of interest over the life of the loan will be lower than under a traditional mortgage.

comments powered by Disqus
Hot Definitions
  1. Legal Monopoly

    A company that is operating as a monopoly under a government mandate. A legal monopoly offers a specific product or service at a regulated price and can either be independently run and government regulated, or government run and regulated.
  2. Closed-End Fund

    A closed-end fund is a publicly traded investment company that raises a fixed amount of capital through an initial public offering (IPO). The fund is then structured, listed and traded like a stock on a stock exchange.
  3. Payday Loan

    A type of short-term borrowing where an individual borrows a small amount at a very high rate of interest. The borrower typically writes a post-dated personal check in the amount they wish to borrow plus a fee in exchange for cash.
  4. Securitization

    The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors.
  5. Economic Forecasting

    The process of attempting to predict the future condition of the economy. This involves the use of statistical models utilizing variables sometimes called indicators.
  6. Chicago Mercantile Exchange - CME

    The world's second-largest exchange for futures and options on futures and the largest in the U.S. Trading involves mostly futures on interest rates, currency, equities, stock indices and agricultural products.
Trading Center