Bernard Liengme said:

Canadian banks are required to quote the interested

as if it was semi-annual (ie if they quote 6% then

it is 3% semi-annually) BUT they compute the interest

on a month basis. Very odd, eh?

Of course they compute interest on a monthly basis. The issue is: what is

the monthly rate?

And the answer to that question impacts the monthly payment, total interest

and loan reduction computations.

The following is according to

http://support.microsoft.com/kb/294396/en-us .

It jibes with online Canadian calculators that I have tried.

According to the KB, Canadian law "permits a compounding frequency of 2".

The monthly rate is computed by RATE(6,0,-1,1+6%/2), or if you prefer:

(1+6%/2)^(1/6)-1. That results in a lower monthly rate, payment and total

interest than the nominal rate, 6%/12, which is used in the US.

Aside.... I don't know how much to read into the word "permits". Also, I

quibble with the terminology above.

FYI, according to the KB, UK loan rates are considered to be "effective"

annual rates. The monthly rate is computed by RATE(12,0,-1,1+6%), or if you

prefer: (1+6%)^(1/12)-1. That results in a lower monthly rate, payment and

total interest than the Canadian method.

I have not been able to vet the KB's method for UK loans. On the contrary,

I believe I have seen online UK loan calculators that use the US method.

Also, I believe I found one UK loan calculator that computed the monthly

payment, for a 25-year 100,000 loan for example, by PMT(6%,25,-100000)/12,

resulting in a monthly rate of RATE(25*12,pmt,-100000). That results in a

higher monthly rate, payment and total interest than the US method.

Caveat emptor: I might remember the 2nd UK methodology incorrectly; and

even if I remember it correctly, the original source might be incorrect.

For alternative methods in these and other countries, I would appreciate

pointers to online sources for my edification. Thanks.

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