Interest Accrual Period

Interest Accrual Period

The period over which the interest due the lender is calculated.

Assume a 6% mortgage with a $100,000 balance. If the interest accrual period is a year, as it is on some loans in the UK and India, the interest for the year is .06($100,000) = $6,000. If interest accrues monthly, as it does on most mortgages in the U.S., the monthly interest is .06/12($100,000) = $500. If interest accrues biweekly, as on a few programs in the U.S., the biweekly interest is .06/26($100,000) = $230.77. And if interest accrues daily, as it does on HELOCs and some other mortgages in the U.S., the daily interest is .06/365($100,000) = $16.44.

The interest accrual period may or may not correspond to the payment period. On the annual accrual mortgages in the UK, payments are made monthly. On most monthly accrual mortgages in the U.S., payments are also made monthly, but in some cases payments are made biweekly. On biweekly accrual mortgages, payments are made biweekly. On daily accrual mortgages, payments are made monthly or biweekly.

Given the same stated annual interest rate, as 6% in the example, shorter accrual periods result in higher interest earnings over a year because of reinvestment of prior interest. See Effective Rate.

The Mortgage Encyclopedia. Copyright © 2004 by Jack Guttentag. Used with permission of The McGraw-Hill Companies, Inc.
References in periodicals archive ?
1.988-2(b)(2)(iii)(B) to translate interest income and expense at the spot rate on the last day of the interest accrual period with respect to a covered debt instrument denominated in a currency other than the U.S.

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