Setting up a Canadian mortgage in GnuCash

[Dawning Sky]

On 1/28/07, Cam Ellison <cam at ellisonpsychology.ca> wrote:
>
> 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.
>
>
So basically you're saying even though you're required to make a monthly
payment to the lender, the lender only applies those payments to your
account every 6 months?  This is simply unfair.  Of course, if they're
required to apply your payments immediately as you pay them, they probably
will increase the nominal rate to cover this "loss".

DS