Simple Schedule
Depending upon the previously saved (F9) default values, when the program is started the calulcator at the top of the screen will appear as (Below).
The 12 input boxes (Heading: plus 11 data boxes) are where the initial mortgage data is entered. To move to any of these input boxes use the mouse and click on the box or hold down the Tab key until you arrive at the appropriate box. The “Heading:” box can only be accessed using the mouse.
As soon as a value different from the default is entered in any one of the first four boxes the RECALC message appears in the middle of the screen. (above). The RECALC message informs you that you need to recalculate any one of the 3 remaining items (3 of 4 feature). You decide which box to recalculate by holding down the Tab key until the box is highlighted in blue and then press F6 to recalculate that box, then the RECALC message will disappear. Or using the mouse you can place the cursor on the prompt message in front of the appropriate box and left click, to recalculate. If you enter new information in any three of boxes the fourth box will automatically be recalculated. You cannot enter data in all four boxes, in other words there must always be something to recalculate. It is mathematically impossible to specify all four boxes.
The first 12 payments of an amortization schedule for this scenario are shown below, assuming all payments are made on the specified dates, there are no changes and the interest rate is the same over the 30 year amortization period.
To print the entire amortization schedule, click on File, Print and Spreadsheet..
To print any portion of the amortization schedule, first highlight the area of the schedule with the mouse by clicking and dragging the cursor, then click on File, Print and Highlighted Range. For example, (below) would only print payments 3 to 9 inclusive.
A Printed Schedule will look like (below)
More Examples
Advance Date
If you buy a house for $100,000 and the deal closes on the 26th of May (you sign the papers and hand over your lenders cheque of $100,000 to the person you bought the house from) the Advance date is the 26th of May.
MM/DD/YYYY is the default format.
June 1, 1999 is entered as 06/01/1999
If you enter 06/01/99 it will automatically change to 06/01/1999 upon pressing the tab key.
The day you receive the money is the advance date and the first monthly payments is due one month later.
Amortization Period
The length of time the money is borrowed is called the amortization period. Most Canadian Mortgages are for 25 years. Most American mortgages are for 30 years. As a borrower you can ask for a smaller amortization period. The only obstacle to a lower amortization period is that you may not qualify due to the Gross Debt Service limitations of some of the Lenders.
This box expects years or fractional parts of years. A 30 month amortization period must be entered as 2.5 years. A 43 month amortization period must be entered as 43/12= 3.5833 years.
The maximum amount of time is 40 years that can be entered.
Annual Interest Rate
The interest rate is also called the Annual Interest Rate (AIR). The AIR is the interest rate numbers that are printed in the newspapers.
In CANADA a 12% annual interest rate is equivalent to an effective interest rate of 12.36% due to semi-annual compounding. The AIR is sometimes also called the stated annual interest rate or the nominal interest rate if the compounding frequency is stated.
In the USA a 12% annual percentage rate is equivalent to an effective interest rate of 12.6825% due to monthly compounding.
The maximum interest rate that can be entered is 25%.
However because of the 3 of 4 feature it is possible to calculate interest rate values greater than 25%
Compounding
Canadian mortgages because of a Federal law (CANADA INTEREST ACT 1900, aka “an act respecting interest”) must be semi-annual compounding or annual compounding. The program initially defaults to semi-annual compounding, which is the method used by all Canadian lenders. To change the compounding, click on the compounding combo box down arrow. Use the mouse or the up and down arrow keys to select the compounding.
Canada Trust at one time was the only major Lender in Canada that had a different interpretation of semi-annual compounding. Canada Trust did not use blended monthly payments in the strict sense of the words, thus do not be alarmed if old Canada Trusts pay out figures do not exactly agree. A discussion of their method (Gale Date Method) is beyond the scope of this Help screen.
Semi-annual compounding is the default setting shipped with the program.
By clicking on the down arrow of the Compounding combo box you can click on the various types of compounding and immediately see the impact on the payment in the payment box and the total interest on the bottom left corner of the screen.
If you want to change the compounding to a default of monthly compounding then click monthly compounding, press F9 (or go to the FILE MENU and click on Save Defaults) and then click on the SAVE button. Now each time the program is started, monthly compounding, will be the default compounding method.
For that matter you may change any of the eleven calculator boxes to your own defaults and repeat the F9 and SAVE procedure.
Virtually all Canadian residential mortgages are semi-annual compounding, regardless of the payment frequency. All Canadian consumer loans are monthly compounding with monthly payments.
Virtually all American mortgages are monthly compounding.
Most American mortgages are fixed rate mortgages with a 30 year amortization period, monthly compounding and monthly payments.
Default Values
An American user usually changes the compounding box to monthly compounding and the amortization period to 30 years and then presses F9 and clicks on SAVE to save the default values. Each time the program is run it will be on a default of monthly compounding with a 30 year amortization period.
Heading
Click on the Heading: box with the mouse to gain access. Type in anything you want to be printed at the top of the amortization schedule when printed.
Real Estate lawyers that generate many schedules a day often have the their company name in this spot thus eliminating the need to retype it each time.
Interest Adjustment Date
You buy a house for $100,000 and the deal closes on the 26th of May (you sign the papers). The closing involves giving the buyer the cheque for the $100,000. Your lender advanced you the mortgage money of $100,000 but the lender may not want the monthly payments to fall on the 26th of each month. Your lender wants the monthly payments to be on the first of each month. June 1st becomes the Interest Adjustment Date and July 1st becomes the first blended monthly payment.
The interest adjustment method is accessed from the Preference Menu as
Alt, R, I, choose C or S
The default as shipped is Compounded, and it is whatever the type of compounding that is currently selected.
The Exact Simple Interest method is available for backward compatibility.
Some lenders prior to 1995 used this latter method and variations of it. Most lenders today believe that if the body of the mortgage was calculated in accordance with semi-annual compounding then the interest adjustment should also be semi-annual compounding.
Just a reminder, whatever your preferences are be sure to click on save before leaving the Preference Menu in order to save them MORTGAGE2 PRO.PRE file.
For example; if a $100,000 ($100,000 mortgage at 7% amortized for 5 years with monthly payments of $1,975.41 using semi-annual compounding) was advanced on May 26th the interest for six days for the use of the $100,000 is $113.16 and payable to your lender on June 1st. One month later, on July 1st the first blended monthly payment of $1,975.41 is due or owing to your lender. The June 1st payment is all interest and serves to move the advance date forward.
MM/DD/YYYY is the default format.
The Interest Adjustment Date, IAD, always defaults to the advance date unless you enter a different date. The IAD cannot be earlier than the advance date only equal or later.
For many reasons most lenders prefer payments to be at the first of the month. When you are selling your house the deal may close at any time thus interest adjustments must be made to make the loan payments coincide with the lenders payment preference.
You buy a house for $100,000 and the deal closes on the 26th of May (you sign the papers). The closing involves giving the buyer the cheque for the $100,000. Your lender advanced you the mortgage money of $100,000 but the lender may not want the monthly payments to fall on the 26th of each month. Your lender wants the monthly payments to be the first of each month. June 1st becomes the Interest Adjustment Date and July 1st becomes the first blended monthly payment.
Lease Buyback
If the Leasing Mode selection in the utilities menu has been activated, the calculator residual box is shown as one of the eleven calculator boxes. You can turn off this box from the utilities menu.
The % value in this box, will be the percent of the original loan left after the amortization period, often called the “buyback” amount.
EXAMPLE:
If you were contemplating a car loan of $30,000 at 9% amortized for 4 years (with monthly compounding) the monthly payments would be $746.55.
If you wished to lease the vehicle and owe 20% (20% of $30,000=$6,000) of the original loan at the end of the four years you would enter “20%” in the lease buyback box or click on the lease buyback down arrow and click on 20%.
The balance at the end of four years would be $6000 (usually within one dollar) but the monthly payments were reduced to $642.84 a reduction in monthly payments of over $100.
If you wished the balance of the loan or residual to be exactly $5,710 at the end of the four years you would type in 5710 into the lease buyback box (without the percent sign).
To be technically correct, the lease payments would be in advance, however this is a quick and simple method of arriving at leasing options.
The Lease Buyback combo box is displayed by default each time the program is started. If you wish to turn it off go to the UTILITIES MENU and click the Leasing Mode off.
By clicking the down arrow of the Lease Buyback combo box you can click 10%, 15%, 20%, 25% and 30%. If you had a loan of $30,000 amortized for 4 years and you clicked on the 10% Lease Buyback choice, the balance owing after four years would be $3,000 (within one dollar). Clicking on the 10% would immediately lower the payment and recalculate the schedule (lengthening it) and show the balance owing (also called “residual” or “buyback” in financial circles) at payment 48 to be $3,000. If you had wanted the residual to be $2,710 at the end of the four years you would just type in 2710 in to the combo box without the percent sign.
Payment
The maximum payment that can be entered is $100,000,000 minus 1 penny.
(do not type in the $ sign or commas)
The payment is based upon the principal, annual interest rate, amortization period and the type of compounding. The payments initially calculated in the spreadsheet are blended payments. A blended payment means that each month (or week) the payment remains the same but as time progresses more of the payment is applied towards the paying down the principal and less towards the interest. The blended payment calculated by the loan calculator is the payment required to completely amortize the principal over the full amortization period for the given annual interest rate. This is exactly how a financial calculator works.
POINTS TO CONSIDER ABOUT PAYMENTS
Accelerate your Payments:
Accelerated weekly payments are not calculated by the Loan Calculator because they are arbitrarily arrived at by dividing the Loan Calculators monthly payment by four. This was an arbitrary decision by one of the first lenders when the weekly payment plan was introduced in 1984. The rationale was; let the borrower pay back 13 monthly payment during the year but on a weekly basis, thus (13 x monthly payment)/52 is the same as monthly payment/4 because 52/13=4 !!
Extra Wide Payments:
If the payment is too large to fit in the payment column of the spreadsheet,
using the mouse move the pointer to the column heading, in between the Payment heading and the Int% heading and the cursor will change to <—-> then click and widen the column as shown below.
Payments Per Year
The default value is monthly payments(12). Also available are, Yearly payments(1), half- yearly(2), quarterly(4), semi-monthly(24), bi-weekly(26) and weekly(52) payments.
The two most popular methods in Canada are monthly and weekly payments, even though all choices are available by all Major Lenders in Canada. Accelerated weekly payments (dividing the monthly payment by four) will save the borrower the more money and yet a lot of Canadians are not yet aware of this fact. Weekly payments were introduced in Canada in June of 1984. About 50% of all Canadian mortgages in 1995 were weekly payments. Good news travels slow!
Weekly payment mortgages are only available for residential mortgages in Canada.
AMERICAN USERS:
In the USA most residential mortgages are called 30 year FRMs (fixed rate mortgages). That is an amortization period of 30 years with a fixed interest rate and monthly payments. In the USA bi-weekly payment mortgages are slowly gaining ground but because the US Banking industry is fragmented and varies from state to state each lender plays around with the compounding frequency and thus not all US bi-weekly mortgages are the same with respect to interest saved.
By clicking the down arrow of the Payments per Year combo box you can click on the payment frequency and immediately see the impact on the payment in the payment box and the total interest on the green status line.
Principal
The principal is the amount of money borrowed. In previous versions of MORTGAGE2 PRO this was called amount borrowed. They both mean the same thing. The principal is the amount of money advanced to the borrower on the advance date. Thus if $50,000 was advanced (borrowed) on June 1st 1995, one month later on July 1st 1995 the first blended monthly payment is due to the Lender.
The maximum amount that can be entered is $100,000,000 less one penny.
That is 99,999,999.99
NOTE: Do not type in commas or $ symbols.
Term
The term is a point in time when the mortgage is fully open and renegotiable.
The term has nothing to do with the calculation of the mortgage payment or amortization period.
The term is used for renewal purposes and the calculation of the Interest Rate Differential (IRD).
It is good practice to fill the term box when you first set up a schedule because the term will be fresh in your mind. The reason you need to fill in this box is because if you renew your mortgage before the end of the term the program will automatically calculate the IRD. To renew a mortgage before a term expires is defaulting on a contract and thus the lender needs to be fairly compensated. Your mortgage payments to a lender are projected and reinvested in other financial vehicles and based on the term, thus the IRD is a fair method of compensation to the lender.
By clicking the down arrow of the Loan Term combo box you can click on ½, 1,2,3,4,5,7,10 and 25 years.
Nothing will happen on the main screen and no calculations are performed.
The term has nothing to do with the calculation of the mortgage payment or amortization period.
The term is used for renewal purposes and the calculation of the Interest Rate Differential (IRD).