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What is a Simple-Interest Mortgage?
In a simple-interest mortgage, interest is calculated daily rather than monthly.
  • advantages: For extremely experienced, savvy, and disciplined borrowers, this type of mortgage allows them to use cash-that would normally be applied to larger, monthly payments of principal and interest-for other purposes, most likely in investing.

  • disadvantages: Regardless of the borrower's skill, compared with a traditional monthly-payment loan for the same amount (including extra for the principal), the simple-interest loan will always result in the borrower paying more.

    There is no grace period for simple-interest loans. For example, if the due date of your payment falls on a Sunday, and your payment is not received by the preceding Saturday, your payment will be counted as late, you will accrue any late fees, and you will pay accrued interest on every day the payment is outstanding. Remember, if your check is already in the mail, the USPS will not deliver it on Sundays!

    This also means that late fees accrue daily and interest compounds daily.

    Additionally, the temptation may be high for undisciplined borrowers to not make regular, higher payments towards the principal.

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