You might think this is a strange question and think that everyone's is calculated the same way. Well, the way your lender figures out how much interest you owe can make a big difference in how much interest you end up paying.
With an interest-only mortgage, the amount of the loan that is still owed stays the same over the life of the loan. This means that you know how much interest you'll pay at the start of each year, assuming that interest rates don't change.
But this is not true for repayment mortgages, which are also called capital and interest mortgages. With this kind of mortgage, a portion of your monthly payment goes toward paying down the balance of your loan. This means that at the end of each year, your mortgage debt will be less than when the year began. Before a few decades, most lenders calculated interest once a year. This meant that at the beginning of each year, they looked at how much you owed on your mortgage and used that amount to figure out how much interest you would pay the next year. They didn't take into account how much you paid toward your mortgage each month during that year. At the end of the year, they would look at how much your mortgage had gone down and start over.
In the past few years, a lot of lenders have switched to calculating interest every day. This is better for the borrower because the interest you pay is based on how much your mortgage balance goes down each month.
Let's look at a simple example of a GBP100,000 mortgage that is paid back over 20 years with a 5% interest rate. The payment would be GBP659.96 each month. About GBP250 of this will be used to pay back the loan. So, after six months, you would have paid back about GBP1500 of your GBP100,000 mortgage. So why should you have to pay interest on a GBP100,000 loan for the next six months when your mortgage is now only worth GBP98,500? You don't have to, though. If you get a mortgage from a company that figures out interest every day, you will only ever pay interest on the amount of the loan that you still owe.
The best way to make sure you get a mortgage with daily interest calculation is to use a mortgage search engine that lets you look at only mortgages that have this feature. It's not the only thing you should think about—the real cost of the mortgage over the life of the mortgage deal is what really matters—but it's something you should be aware of.
