Daily Interest Accrual vs Monthly Charging
ADS Team
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August 19, 2026
3 months ago
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In short: Most Australian home loans accrue interest daily on the closing balance and charge it monthly. That is why the timing of your repayments and offset deposits matters: money sitting in an offset for twenty days genuinely reduces twenty days of interest, and a repayment made early reduces the balance for the remaining days of the cycle.
Key takeaways
- Daily accrual means every day the balance is lower saves interest.
- Paying early in the cycle saves slightly more than paying late.
- Offset balances work day by day, not on a monthly average.
- Month length explains why your interest charge differs between months.
How it is calculated
Daily interest = balance × (annual rate ÷ 365). On $600,000 at 6.5% that is $106.85 a day.
Over a 31-day month that is $3,312; over 28 days, $2,992. Same loan, same rate, a $320 difference - which is why your statement varies month to month without anything changing.
Why timing matters
Depositing $20,000 into an offset on the 1st rather than the 25th of a 30-day month saves 24 extra days of interest on that amount: $20,000 × 6.5% ÷ 365 × 24 = $85. Repeated monthly, that is over $1,000 a year for doing the same thing earlier.
The same logic applies to salary credited into an offset rather than a separate savings account.
What it does not change
Your scheduled repayment is calculated from the amortisation formula and does not vary with month length. What varies is the split - a longer month charges more interest, so slightly less of that repayment reduces principal.
Frequently asked questions
Should I switch to weekly repayments?
The gain is small compared with true fortnightly repayments, which deliver 26 half-payments a year. Frequency helps a little; the extra annual payment helps a lot.
Does the day my repayment falls matter?
Marginally. Earlier in the cycle is slightly better. Aligning the repayment date just after payday matters more practically, because it prevents dishonours.
Is 365 or 366 used in a leap year?
Contracts vary - most Australian lenders use 365 regardless. Check your contract if you want the exact convention.
Related reading
- Weekly vs Fortnightly vs Monthly Repayments: The 13th Payment Effect
- The Home Loan Repayment Formula, Worked Step by Step
- Debt-to-Income Ratio: Calculating Yours Before the Bank Does
Sources
- How home loan interest is calculated — ASIC Moneysmart
- Housing lending rates, statistical table F6 — Reserve Bank of Australia
Rates checked as at 2 September 2026. Interest rates, lender policies and government schemes change frequently. Figures in this article are illustrative and were accurate at the date shown.
General advice warning: This article contains general information only. It does not take into account your objectives, financial situation or needs, and it is not personal credit or financial advice. Consider whether it is appropriate for you and seek advice from a licensed credit representative before acting.
Any interest rate shown is an example only and is not an offer of credit. Where a rate is quoted, the applicable comparison rate is available from the relevant lender and should be considered alongside it.
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