amortization.com Ltd.
Burlington, Ontario

905-639-0374
905-407-7988

info@amortization.com

Here is a common question often asked.

What is the difference between a mortgage buy down calculation and an Interest Rate Differential (IRD) calculation? The answer is, there is no difference. The only difference is in the terminology used and the explanation.

The calculations are rounded to the nearest dollar because the software has to use a trial and error method of iteration. If the calculations were to be to the penny it would take excessive time due to the increased iterations. Most people wont complain about a dollar difference on a \$150,000 mortgage.

Lets assume you are selling your house and you want to make it attractive by having a low interest rate on your assumable mortgage. Your current mortgage balance is \$150,000 but the rate is 11% for the next three years. You want to buy it down to a 7% rate which makes the mortgage more attractive. Your lender wants \$15,440 up front to continue on for the next three years at the lower rate of 7%. You don’t have the \$15,440 so its added on to your outstanding balance.  The mortgage balance for your new home buyer at the end of 3 years is exactly the same, \$145,803 as if you left the balance at \$150,000 and he assumed the 11% mortgage. All YOU really do is add the \$15,440 onto the selling price of the house before you list it for sale.

An IRD calculation:

(Screenshot 1)

VIDEOS

amortizationdotcom Mortgage Calculator for iPhone

Introduction to Canadian and American Mortgages

Seminar on prepaying principal (Part A)

Seminar on prepaying principal (Part B)

Global TV Interview regarding 40 Year Mortgages

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