## Top Ten Mortgage Myths

**Top Ten Mortgage Myths,****Copyright © Ron Cirotto 2017, all Rights Reserved.**

**1. Compound interest is the bane of mortgages.**

If all the blended payments are made on time, the borrower is only paying simple interest.

**2. Mortgages are structured so that the bulk of the interest is paid up front**.

The moment you leave the Bank an interest clock starts ticking, the longer you wait to make a mortgage payment the greater the interest. Your very first interest calculation (at the end of the first month) is based upon your initial Principal. There is no *structuring nonsense*.

**3. Semi-annual compounding means interest is calculated every six months on a Canadian mortgage.**

Monthly payment mortgages have an interest calculation performed at the end of each month whether it is a Canadian or an American mortgage. For the same annual interest rate (now called the APR) in Canada the monthly interest factor is a little smaller than an American monthly interest factor due to the *semi-annual compounding* criteria. The interest factor is multiplied by the outstanding balance to determine the value of the interest portion of that blended payment.

**4. In some legal documents it is stated that Prepaying payments must go towards the principal.** Nobody prepays interest.

Interest is due at the end of the month (or week) for the use of the money for that month. This just confuses novice borrowers.

**5. Paying the IRD (Interest Rate differential) actually saves you money.**

Paying the proper IRD calculation is like trading 4 quarters for a dollar. It saves you nothing because the lender gets the same amount of money at the end of the term.

**6. Paying monthly payments along with an annual anniversary payment at the end of the year is as good as paying weekly.**

Anyone that buys into this smoke and mirror idea obviously does not understand the time value of money.

**7. Biweekly payment mortgages are just as good as weekly payment mortgages.**

The sooner one reduces the balance the sooner the mortgage is retired.

**8. Blending two mortgages or two loans is cost effective using a blended rate.**

One requires three amortization schedules to verify if the blended rate is in the borrowers favour.

**9. Missing a blended payment only requires you to pay the late fee.**

Because of the deemed reinvestment principal both the principal portion and the interest portion must be paid back.

**10. Your friendly Loans Officer is well versed in mortgage calculations.**

This one is self explanatory as anyone who has had to deal with a Bank will attest to.