How to Convert Per Diem Interest Rates

by Chirantan Basu ; Updated July 27, 2017
Mortgage lenders typically calculate per diem interest based on a 360-day year.

A per diem interest rate is one day's interest on a loan or mortgage. You convert per diem interest rates to compare rates from different financial institutions or for business financial-reporting purposes. You multiply the per diem rate by 365 to get the annual rate when interest is calculated for the actual number of days between payments. Or you multiply by 360 when interest is calculated according to a set number of days between payments, which is usually once a month for mortgages.

Step 1

Get the per diem interest rate. If the per diem interest is expressed in dollars, divide the dollar amount by the principal and then express it as a percentage. For example, if the per diem interest is $10 and the principal is $100,000, the per diem interest rate is 0.01 percent: 100 x (10 / 100,000).

Step 2

Multiply the per diem interest rate by 365 to get the annual rate. In the example, the annual rate is 3.65 percent (0.01 x 365). If it is a leap year, the annual rate would be 3.66 percent (0.01 x 366).

Step 3

Compute the annual interest rate when interest is calculated once a month. Multiply the per diem rate by 360 to get the annual rate. To conclude the example, the annual interest rate is 3.6 percent (0.01 x 360).

About the Author

Based in Ottawa, Canada, Chirantan Basu has been writing since 1995. His work has appeared in various publications and he has performed financial editing at a Wall Street firm. Basu holds a Bachelor of Engineering from Memorial University of Newfoundland, a Master of Business Administration from the University of Ottawa and holds the Canadian Investment Manager designation from the Canadian Securities Institute.

Photo Credits

  • Comstock/Comstock/Getty Images