How to Convert Per Diem Interest Rates

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Mortgage lenders typically calculate per diem interest based on a 360-day year.
Mortgage lenders typically calculate per diem interest based on a 360-day year. (Image: Comstock/Comstock/Getty Images)

A per diem interest rate is one day's interest on a loan or mortgage. You convert per diem interest rates to compare rates from different financial institutions or for business financial-reporting purposes. You multiply the per diem rate by 365 to get the annual rate when interest is calculated for the actual number of days between payments. Or you multiply by 360 when interest is calculated according to a set number of days between payments, which is usually once a month for mortgages.

Get the per diem interest rate. If the per diem interest is expressed in dollars, divide the dollar amount by the principal and then express it as a percentage. For example, if the per diem interest is $10 and the principal is $100,000, the per diem interest rate is 0.01 percent: 100 x (10 / 100,000).

Multiply the per diem interest rate by 365 to get the annual rate. In the example, the annual rate is 3.65 percent (0.01 x 365). If it is a leap year, the annual rate would be 3.66 percent (0.01 x 366).

Compute the annual interest rate when interest is calculated once a month. Multiply the per diem rate by 360 to get the annual rate. To conclude the example, the annual interest rate is 3.6 percent (0.01 x 360).

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