Mortgage Compound interest calculations: Canada Vs US:
Canada Mortgage Interest calculations
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Published rate is compounded semiannually (Mandated by Law).
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Example: A published 10% rate compounded semiannually equals 10.25% when compounded annually. [ =(1+10%/2)^2 – 1 ]
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Interest is calculated using an equivalent daily interest rate. So the calculated interest per payment interval will vary depending upon the number of the days in the payment schedule. Example: The interest payments for monthly installment will be higher for January (31 days) vs February (28 days).
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The equivalent daily interest rate assumes there are 365 days in a year.
US Mortgage Interest calculations:
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Published rate is compounded monthly.
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Example: A published 10% rate compounded monthly equals 10.4713% when compounded annually. [ (1+10%/12)^12 – 1 ].
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Interest is usually calculated using an equivalent interest rate per interval. This makes the standard monthly paid mortgage calculations really simple. The equivalent monthly interest rate is therefore Yearly rate/12 and it does not take in account the number of days in that particular month. Subsequently interest payments do not depend upon the number of the days in the payment schedule. Example: The interest payments for monthly installment will be same January (31 days) vs February (28 days).
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For non-monthly payments, the daily equivalent interest rate is used that is derived by taking 365 or 360 days in a year. (The calculator on this website uses 365 days).
These notes on the difference between mortgage calculations are purely based on author’s research on web resources of major financial banks within US and Canada. So please use these guidelines / mortgage calculations as an estimate only. Always make sure with your financial institution regarding the methods they use to calculate interest before making any financial decision.