Another difference between the U.S. and Canada is how mortgage interest is calculated. In the U.S., interest is compounded monthly. In Canada, it's compounded semi-annually. So for the same interest rate, you'll pay slightly more each month in the U.S. than in Canada.
Fortunately your family lives in a sane country where the government doesn't interfere incessantly in the business of loaning money to purchase properties. Our country insists on trying to defy reality and issues insanely low mortgages on completely nonsensical terms because GSEs will purchase the debt and assume the risk no private entity would. This lunacy is somewhat unique to our country so I can understand it being confusing.
The mortgage rate is fixed for 30 years. Crazy...isn't it!?
Another difference between the U.S. and Canada is how mortgage interest is calculated. In the U.S., interest is compounded monthly. In Canada, it's compounded semi-annually. So for the same interest rate, you'll pay slightly more each month in the U.S. than in Canada.
Another difference between the U.S. and Canada is how mortgage interest is calculated. In the U.S., interest is compounded monthly. In Canada, it's compounded semi-annually. So for the same interest rate, you'll pay slightly more each month in the U.S. than in Canada.
Good luck!
Not sure what that means. Interest on a loan isn't compounded at all. Interest on a savings account is compounded. The compounding interval is the difference between the stated interest rate and the "APY" or Annual Percentage Yield.
On a 30 year fixed mortgage in the US each payment consists of interest and principle. The amount of interest is the annual rate divided by 12 (i.e, the monthly interest rate) times the outstanding balance. The total payment is fixed for all payments, so in the first payment, the amount of principle is small. In later payments it becomes much larger because the amount of interest declines.
In Excel, is the "PMT" forumula. Specifically PMT ("quoted rate"/12, 30*12, loan amount).
That 4.5% rate sounds like an owner occupied rate. I assume you're living in the property.
The bi-annual calculation would be used to adjust the annuity. So instead of adjusting the annualized formulas with a factor of 12 you would instead use a factor of 2.
I wondered about that. But if you compute the payment based on 60 semi-annual payments, then divide by six, the payment is slightly higher, not less. For a $100K loan at 4.5% for 30 years, I get $506.69. If I make semi annual payments, the payment is $3,053.53 which is $508.92 a month. That makes sense, since you don't make the interest payment until the end of every six month period.
Now, when I use those terms (4.5%, 30 year fixed) in a RBC (Royal Bank of Canada) calculator, I get a payment of $504.22. Interest is $371.53 for the first payment and principle is $132.69. They use that same "compounded semi-annually" terminology. But I can't figure out how to coax excel into computing that value.
Solve for R1 and R2 using the formula twice...adjusting the rate and period for 12 even payments in one instance and 2 in another. That should give the difference if you choose all of the other variables. I am sure you can solve for it in general form too if you need to exercise the brain a bit. I'm too lazy to do it.