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Monthly Rest Interest...

As interest is charged by every lender on every mortgage or loan, the lender needs to decide how exactly they intend to calculate it, as it will have a significant effect on how much is charged and in turn how much money they actually make.

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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