Accuracy of HP Financial Calculators - Canadian mortgage

[Jeff_Kearns]

Your statement:

(01-10-2014 01:02 AM)DMaier Wrote:  The effective interest rate is: 0.24845167247

is incorrect.

I am not a financial type - I am an engineer. But I think it is important to make a note on terminology. That value: 0.24845167247%, is actually the 'nominal' monthly rate, not the 'effective' interest rate. If you multiply it by 12, you get 2.98142007%, the nominal annual rate for monthly payment calculations.

The stated 'nominal' annual rate for Canadian mortgages is based on a semi-annual compounding period - and is 3% in this particular example. This translates into an 'effective' annual interest rate of 3.0225%.

The 'effective' interest rate is always greater than the nominal rate. There are in fact, three 'rates' at play here...
> The posted 'nominal' rate of 3%, based on semi-annual compounding;
> The 'effective' annual interest rate of 3.0225%; and
> The 'nominal' rate of 2.98142007%, used for the calculation of monthly payments.

Effective Annual Interest Rate Explained

Regards,

Jeff