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Pros and Cons of a Simple-Interest Mortgage


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TERMINOLOGY

When you decide to finance your home with a simple interest mortgage, there are some advantages to this type of loan. The amount of money you will save by using a simple interest loan, instead of a conventional mortgage will depend on whether you can make your payments at a faster rate, on a consistent basis.

Pros

Unlike a conventional mortgage where the interest is calculated monthly, with a simple interest mortgage the interest is calculated on a daily basis. If you intend to pay your mortgage payment every 25 days like clockwork, you will save on the finance charges by using a simple interest mortgage.

Cons

If you have difficulty making a payment early, a simple interest loan does not have a grace period like a conventional mortgage allows. However, if you are able to pay extra in the following month to make up for the delay, you can catch up the interest and then resume paying early.

If you are unable to make your payments early, you may have to pay the exact number of payments that were required at the inception of the loan.