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  Simple Interest 

Many of our borrowers achieve savings of up to 30%
of their total interest costs* over the life of their mortgage
by choosing a simple interest mortgage. 


These savings are achieved as follows:

The simple interest mortgage provides for fixed monthly payments of principal allowing for a faster repayment of principal at the beginning of the mortgage. 

Conversely, only a negligible amount of principal is typically repaid during the early part of a standard mortgage, resulting in significantly higher interest costs over the mortgage term.

  

 The simple interest mortgage does not compute interest on interest as is the case with a standard mortgage on which interest is typically compounded semi-annually.

Monthly payments which are comprised of a fixed principal component plus interest typically go down each month as interest costs decrease.

At any point in time a borrower can generally compute the amount of principal or interest due without referring to complex amortization tables simply by using the following arithmetic formula:

Principal Due = Mortgage Original Balance ÷ [by the # of months amortized] (usually 300).

Interest Due = Outstanding Principal Balance × [interest rate ÷ 365 days a year] × [# days since last payment]. Calculated daily.

  

 

 

 

The simple interest mortgage
is simply that simple.

*Over comparable costs of a standard mortgage with fixed monthly payments of blended interest and principal, with semi-annual compounding, as commonly offered by Chartered Banks and other Canadian Financial Institutions.
 

Example:

  

Banks and mortgage lenders usually apply a compounded semi-annual rate, essentially applying interest onto interest (e.g. 5.50% interest rate becomes 5.58%).
Cost of borrowing $100,000 would be principal plus interest of $83,117.46 (5.50% interest rate) for a total of $183,117.46.  For the same mortgage at the Estonian (Toronto) Credit Union, the rate remains at 5.5% and is applied as simple interest on the declining balance.  This results in a total cost of $168,089.75, saving $15,027.71.
 Another simple analogy would be to compare the half-way point of a 25 year mortgage.  After 12.5 years, a borrower with a blended rate would have an outstanding principal balance of $66,334.06.  At the same half-way point, the principal balance for our borrower is exactly $50,000 or 50%.
 

 
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