Setting up a Canadian mortgage in GnuCash

[Cam Ellison]

Dawning Sky wrote:
> On 1/21/07, Barry Ferg <bdf_ext at spacebeast.com> wrote:
> 
>> Here is the problem: Canadian mortgage interest is compounded
>> semi-annually.  However, the Loan Druid and associated PMT() functions
>> all assume that the payment and compounding periods are the same, so
>> they won't work.
>>
>>
> I'm not in Canada, so forgive me if I miss something.  Here's my question
> regarding this "semi-annual compounding": Why compounding frequency matters
> in this case, as long as the compounding frequency is lower than the payment
> frequency and you don't have a negative amortization.  You pay all the
> interest accrued during the month, which is a simple interest, since the
> interest is "compounded semi-annually".  Whatever left goes to the
> principal.  So nothing is left to be compounded.

I think we've been down this trail at least once already, and not long 
ago.  In Canada, mortgage interest is calculated "semi-annually, not in 
advance".  This means that you calculate the interest to produce 
one-half the interest rate every half-year.  This is not the same as 
calculating all of the interest at one year.  In fact, the lender makes 
more money the Canadian way (at 6% nominal interest, the actual amount 
is 6.09%).  This is in Federal legislation, probably the Bank Act (if 
it's still called that).  It was obviously a banker who added this 
particular pecularity.

As to having a separate set of calculations, it's a pain to have to go 
back and make adjustments (and can be somewhat complicated) - much 
better to take the time to make a patch, and I for one am most grateful 
to Ludovic for creating this, and Barry for pointing it out.

Cheers

Cam


-- 
Cam Ellison, Ph.D. R.Psych. #1417

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