Merix has just raised the bar (or lowered it, as the case may be).

They’ve just announced a prime – 0.25% variable-rate offer on a 3-year variable. It’s the lowest nationally-advertised variable rate in over a year.

The details:

- Must close within 30 days
- Purchases and refinances only
- No pre-approvals or switches
- Owner occupied single family dwellings only
- Minimum Beacon Score: 680
- Minimum Amortization: 10 years
- Minimum Mortgage Amount: $100,000

Speak with any Merix-approved mortgage planner for complete rules and conditions…

Last modified: April 28, 2014

Wow. Awesome rate. What are the allowable prepayments?

20/20

Does Merix not calculate interest monthly as opposed to semi-annually? This seems to be something that should be taken into consideration.

Can you renew into this product?

Hi Adam,

Interest is compounded monthly. Compared to semi-annual compounding, that amounts to $24.03 extra interest over 3 years on $100,000. It’s pretty much a non-issue given the excellent rate.

Merix’s switch program doesn’t apply so if you’re up for renewal, you’d need to refinance into it.

Cheers,

Rob

Bond yields have quietly dropped substantially over the past week.

Two year yields are down at 1.31%, while a couple of weeks ago they were over 1.55%.

Five year yields are at 2.60%, while a couple of weeks ago they were over 2.85%.

Hopefully a fixed-rate drop is imminent, what do you guys think?

Rob,

Can you explain the difference between interest compounding monthly vs semi-annually.

I thought it only matters, if you do not pay the interest in full each month. when the interest is paid in full (and some capital) before the “compounding period” then it shouldn’t matter, should it ?

Please enlighten :-)

Hi John,

Well, this isn’t exactly Confucius-style enlightenment but hopefully it helps. ;)

In all cases, we’ll assume you pay your interest in full each month.

By way of example, let’s suppose you get a 2.00% variable-rate mortgage and have a $100,000 balance. Now you want to figure out how much interest you’ll owe this month.

With monthly compounding, the interest charged for the month would be:

$100,000 x .02 / 12 = $166.67

With semi-annual compounding, the interest charged for the month would be:

$100,000 x ( ( 1 + (.02/2) ) ^ 1/6 ) – 1 = $165.98

So, from a dollars and cents standpoint, compounding does matter–but not a lot.

Cheers,

Rob

Rob,

your example leaves us with different APRs.

I thought by law, Canadian banks have to advertise APR rates, and not “simple interest rates” (I could be mistaken here).if APR is 2%, then the simple interest rate for monthly compounding should be 1.982% (so that the monthly rate would be 0.16152% not 0.02/12)

In that understanding wrong ? The idea behind requiring APRs I thought was to ensure customers do not end up making an apples to oranges comparison. (But then again, why the heck would the law makers care about the consumers, so probably my understanding is wrong :-)

Just to finish the thought. May be my understanding of APR isn’t the right one.

My assumption was that for a 2% APR, you pay $2 in interest a year for every $100. (regardless of how often the bank compounds the interest). Isn’t that what “APR” is all about ?

2% APR yields a “simple rate” of1.990% for semi annual compounding, and1.982%for monthly compounding.Dan, TD Canada Trust just announced a 0.15% drop for their posted 5-year fixed rate. Other banks will likely follow shortly.

…and I see RBC just lowered all their fixed rates, between 0.10% and 0.20%.

John….Mortgage rates in Canada are quoted on a nominal basis.

Dale

Thanks for pointing that out Rob, and for noticing I sort of saw this one coming!

Rob. That is a nice and concise explanation on the cost of compounding. Well done. Jim..