(Same mathematics different explanations)

1. If the current balance of a Canadian mortgage was $149,999.63 and there were 36 months remaining on the term rate of 11% it would cost the borrower $15,440 in order to lower the rate to 7% for the next 36 months. The borrower would change four quarters for a dollar and save nothing if he/she paid the $15,440 “penalty”.

2. A Canadian home builder was selling homes for $149,999.63 and taking back the 11% mortgage for 36 months. Sales were slow so he did a buy down calculation. He raised the price of the homes to $165,439.63 and took back the mortgages for 36 months at 7% and sales greatly improved as home buyers were impressed by the low interest rate. The builder received the exact amount of money.