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Don't get fooled by interest rates that appear to be lower - you might be paying more on interest.

 

The interest on a mortgage may not be as simple as you think. You might be paying more on interest even though the rate (percentage) appears to be lower. This is because how the interest is compounded plays an important role on the actual interest amount payable.

For example, for a $10,000 loan, which one do you think is better between 5.95% interest compounded monthly versus 6% interest compounded semi-annually? The answer is 6% interest compounded semi-annually. The annual interest you will pay on 5.95% interest compounded monthly is $611.50, where it would be lower if you go with 6% interest but compounded semi-annually, at $609.00.

Typically for the same amount of interest rate, the more frequent the interest is compounded the higher interest you will pay. Feel free to utilize our compound interest calculator and compound interest comparison tool to find out the actual amount of interest you would be paying on your mortgage, or any loan with compound interest.

However, to really save money on the interest of your mortgage, your best method is to utilize expedited payment options such as annual lump-sum and monthly double-up payments. Reducing the principal on your mortgage will have the most impact on the amount of interest you pay as the interest is calculated and compounded based on the outstanding principal of the loan.