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# Mortgages are compunded semi annually Posted on: 18th Apr, 2006 01:09 am
Most Canadian mortgages are compounded semi-annually. Can anyone explain what that exactly means? I know what compounding means when interests are accumulated.
Hi Candy

Basically when mortgage is compounded it's the true rate of interest. If any lender say that you are getting a rate of 6% compounded semi-annually then the actual rate which you are getting is
= [(1 + 0.06/2) ^2 -1] * 100
= 6.09% per annum

So, your monthly interest is calculated at a rate of 6.09%.

SJ Posted on: 18th Apr, 2006 01:28 am
Could any one clarify me what mean here? I have an "accelerated biweekly" payment in which I need to make 26 payments a year, which is also what I would consider real biweekly. Posted on: 19th Apr, 2006 08:57 pm
Hi man

Assume the monthly payment of \$2000.
Then, Sum total of payments annually \$24,000.

In case of
Regular Bi-Weekly Payment Option
Bi-weekly payment = (Monthly payment x 12) / 26
= (\$2000 x12) /26
= \$ 923

Total annual payment = \$ 23,998

Accelerated Bi-Weekly Option
Bi-weekly payment amount = (Monthly payment /2)
= (\$2000 / 2)
=\$ 1000

Sum total of payments annually = \$ 1,000 x 26 = \$ 26,000

So, in the option "Accelerated Bi-weekly payment" you are making one extra month payment every year.

SJ Posted on: 19th Apr, 2006 09:27 pm