From: "Lou" 
Newsgroups: misc.consumers.house misc.consumers.frugal-living
Subject: Re: Paying for biweekly mortgage-payment program makes no sense
Date: Wed, 17 Dec 2003 19:26:16 -0500


"D. Gerasimatos"  wrote in message
news:brq7gm$1ucd$1@agate.berkeley.edu...
> In article ,
> Lou  wrote:
> >
> >Well, yes it does.  It depends on how often the mortgage holder compounds
> >your interest.  You're not charged interest on principal that's paid off.
> >If interest is compounded daily, the sooner the extra principal gets
> >credited to your account, the better.
>
>
> Very few mortgages in the US are compounded daily. Most are compounded
> monthly.
>
Most mortgage payment schedules in the US are once a month, but it is almost
beyond belief that in this day and age, when anyone with a desktop computer
can perform the calculation, that a lender would use anything but continuous
compounding.

However, I concede that I don't know what "most" mortgage compounding
periods are anywhere.

In Canada, banks are required to quote an the percentage rate assuming
semi-annual compounding, and in the US, the equivalent APR - the actual cost
figured at simple interest - must be quoted.  Something is going on, since
the nominal interest rate and the APR never seem to agree.

That doesn't tell us, quite, how much interest will be saved if you prepay
$100 in principal today as opposed to next month.