Simple Interest Vs. Traditional Mortgage
In a simple interest mortgage, the interest is calculated daily; with a traditional mortgage, the interest is calculated monthly. Which one is right for you depends on how timely you expect to be with your mortgage.
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Traditional
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In a traditional fixed-rate mortgage, your annual interest rate is divided by 12 to get the monthly rate. Multiply the monthly rate by the principal balance, and that's how much you owe in interest that month.
Simple Interest
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In a simple interest loan, your annual interest rate is divided by 365 to get the daily rate. Multiply the daily rate by the principal balance, and that's how much interest accrues each day.
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Traditional Payment
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With a traditional mortgage, the amount you owe in interest isn't affected by when you pay your bill. Whether you pay it early, on time or late, the interest is the same (though you may be charged a late fee if you pay it too late).
Simple Interest Payment
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When you pay your monthly bill in a simple interest mortgage, the money you send is first used to pay the accrued interest, and the remainder is applied to reducing the principal. If you pay early, you pay less interest, and more money goes to paying off the principal---but if you pay late, you pay more interest and less principal.
Decision
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According to an analysis by The Mortgage Professor website, a traditional mortgage is your best bet unless you are certain you can pay early every month.
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