Can someone explain a daily compounded mortgage to me?

Question by GriffinsNC: Can someone explain a daily compounded mortgage to me?
I got a mortgage on 1/24/07. Bank said our first payment was due on 4/12. I have paid on time (early actually) every month and the first 2 months payments went entirely to interest. Every mortgage amortization calculator I’ve found says that SOMETHING should be applied to interest. When I called the bank (Wachovia), they said my interest is compounded daily.
Should I look to refinance somewhere else??

Best answer:

Answer by Paul M
This explains how your interest rate works:

http://www.investopedia.com/terms/p/periodic_interest_rate.asp

The more frequently your interest is calculated the more you will pay in interest for any given rate. Say you have a 10% mortgage for $ 1,000 (to make the maths easy). Your interest is $ 100 if you did the calculation, and paid, once a year. However if you did the calculation and paid every month, you would end up paying $ 1,104.70 over the year — an effective annual interest rate of 10.47% You need to compare the effective annual interest rate (APR) when shopping for a new mortgage.

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