For the people that are curious and/or mathematically inclined the following example will show the difference in truth in lending terminology utilized in Canada and the USA.

The Canadian method of Total Cost of Borrowing (TCOB) and the American method of Annual Percentage Rate (APR) are really the same thing in principle.

Let us use a \$100,000 mortgage amortized for 30 years, with an annual interest rate of 7%, monthly compounding and thus monthly payments of \$665.30

If the total charges were \$3000 what impact would this have on the actual interest rate paid by the borrower over the next 30 years.

Notice the words chosen, actual interest rate. This was deliberate.

In the USA the APR would be 7.305%

In Canada the TCOB would be 7.5546%

Canadian truth in lending legislation goes one step further by quoting the new effective interest rate due to the total charges whereas in the USA only the new annual interest rate is quoted.

As a side issue, if one wanted to buy this mortgage (a cash flow of 360 monthly payments of \$665.30) but wanted a “yield” of 7.305% then they would pay only \$96,995.49 (B).

One can also do this APR calculation, over the full 30 years, by using the MORTGAGE2 PRO software as shown below;

Simply, input the data, subtract the \$3000 fees from the Principal and recalculate on the Annual Interest Rate (by pressing F6 or double clicking on the prompt message, Annual Interest Rate: in front of the input box).