APR
When you're researching mortgages you'll come across hundreds of advertisements for mortgages with incredibly low interest rates. These rates are used to entice new customers and it's unlikely that the rate you will pay on your own mortgage will be the advertised rate.
The 'headline rate' used for mortgages is the rate of interest payable per month or year. The APR or Annual Percentage Rate states the rate of interest payable over the entire length of the loan term. It takes into account all related fees and charges you may have to pay and as such it's a far more reliable measure of what it will cost you to borrow the money for your mortgage. It's the best way of comparing loan rates of any kind and lenders are required to quote this rate when you borrow from them.
Daily
Used most frequently with flexible mortgages, the interest on your mortgage is calculated each day although your mortgage repayments are still made on the same day each month. If you have a flexible mortgage and can afford to make regular overpayments, daily interest is excellent when it comes to helping you reduce not only the interest you pay but in turn reducing your loan term.
Monthly
Interest is calculated monthly on your outstanding mortgage balance which means that with each monthly repayment you are reducing the capital of your loan, which in turn reduces the interest payable on your loan. If your repayments are up to date and providing that you are able to make overpayments on your mortgage without penalty, monthly interest can help you reduce your loan term.
The disadvantage is that if you are late with any of your repayments you will be penalised within the same time period.
Annual
Annual interest is calculated and debited on the balance of your mortgage at the beginning of every financial year. The advantage of this is that for the rest of the year you will know precisely what your repayments will be. Further changes in interest rates during the year will not affect you until the following year. Which is great - if interest rates go down.
If they go up, your monthly repayment won't change immediately, but at the beginning of the next financial year, you may find that your repayments have significantly increased. It's a good idea to keep an eye on interest rates throughout the year to see how they might effect your repayments.
The Bank of England reviews its base rate every month and there is always a public announcement about whether the rate will increase or decrease and by how much. You can always check the Bank of England website at http://www.bankofengland.co.uk/ for this information if you want to.
