The folks at KCM provide members like me these graphics which can be used in marketing campaigns, either as printable flyers or in emails. This one I found particularly interesting, however am unable to make use of it due to the fact that the interest rates in Canada are not calculated in the same way as they are in the USA in most cases.
In Canada, our lenders calculate mortgage interest "semiannually not in advance". What that means is basically that half of the interest is charge in each half of the year, and due to this split in the calculation, there is actually interest charged in the 2nd half of the year upon the interest incurred in the first half of the year. Does that make sense?
Imagine if you were paying an annual interest of 20%, they would charge 10% in the first 6 months of the year and 10% in the 2nd half of the year. However since the interest in the first half of the year is added on, the 10% actually becomes 11%. So over the year, the 20% interest returns to the bank a true 21%. The interest is compouned by half a year. This is a subtle different, but one that has helped to make our banks rich at the expense of an industry that has never lobbied to change this.
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