Formula for variable rate Canadian mortgage

Variable mortgage rates are typically stated as prime plus/minus a percentage discount/premium. For example, a variable rate could be quoted as prime – 0.8%. So, when the prime rate is, say, 5%, you will pay 4.2% (5%-0.8%) interest.

How are variable loan rates calculated?

The formula for figuring your new interest rate on a variable-rate loan is to add the interest rate index to your margin. The interest rate index is a measure of the current market interest rate, such as the Cost of Funds Index or the London Interbank Offered Rate (LIBOR).

What is the formula for mortgage calculation?

These factors include the total amount you’re borrowing from a bank, the interest rate for the loan, and the amount of time you have to pay back your mortgage in full. For your mortgage calc, you’ll use the following equation: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1].

What are variable mortgage rates based on?

Variable-rate mortgages have an interest rate that changes based on an underlying benchmark rate. In Canada, this is based on the mortgage lender’s prime rate. While lenders set their own prime rate, the prime rate usually follows the Bank of Canada’s policy interest rate, also known as the overnight rate.

How are variable mortgages compounded?

While fixed-rate mortgages must be compounded semi-annually, variable-rate mortgages can be compounded either semi-annually or monthly (you can learn more about this devil in the detail here). If your mortgage is compounded monthly, you pay more interest.

How do you manually calculate mortgage interest?

If you want to do the monthly mortgage payment calculation by hand, you’ll need the monthly interest rate — just divide the annual interest rate by 12 (the number of months in a year). For example, if the annual interest rate is 4%, the monthly interest rate would be 0.33% (0.04/12 = 0.0033).

What is the formula for calculating a 30 year mortgage?

Use this mortgage formula and plug in the appropriate numbers: Monthly Payments = L[c(1 + c)^n]/[(1 + c)^n – 1], where L stands for “loan,” C stands for “per payment interest,” and N is the “payment number.”

How are mortgage rates compounded Canada?

By law, fixed rate mortgages in Canada are compounded semi-annually, which means that twice a year, unpaid mortgage interest is added to the principal amount of the loan.