Many banks provide mortgage calculators.
a. For example, go to the HSBC Bank of Canada Web site at www.hsbc.ca and select “Borrowing: Loans and Mortgages,” then “Mortgage Calculator.” For a $200,000 mortgage, at annual interest of 6% and 25-year amortization, compare the payments if you pay monthly, semi-monthly, bi-weekly, or weekly. Can you figure out how the numbers are calculated? Do your own calculations.
b. Go to www.tdcanadatrust.com and find another mortgage calculator for the same mortgage as you used in part (b); get the bi-weekly payments. Compare them to HSBC’s. Are they the same? What does that tell you about the importance of assumptions in the time value of money calculations and the need to be careful using Internet calculators?