Are interest rates on home loans calculated daily?

Home loan interest can be calculated in three ways - on a monthly reducing balance, yearly reducing balance or daily reducing balance.

In the monthly reducing balance, interest is calculated on the outstanding principal at the end of each month. The interest for the next month is lower as the principal reduces.

In a yearly reducing balance, interest is calculated annually on the outstanding principal at year-end. EMI remains fixed for that year.

In the daily reducing balance, interest calculation happens daily, as the name suggests. As the principal reduces with each EMI, the daily interest keeps decreasing. This method benefits borrowers the most.