Canadian
Canadian law and practice regarding interest computations and disclosures differ from that of the United States in at least two respects.
- In the United States, the Nominal Annual Rate is pivotal and is used for truth-in-lending disclosures. In Canada, the Effective Annual Rate plays the more important role and is normally a required disclosure.
- Canadian mortgages quote interest as if it were compounded semiannually or annually, even though payments may occur more frequently, such as every month. Interest is allocated monthly based on an equivalent monthly rate.
When Canadian is chosen as the Compute Method in TValue, the Compounding Period field on the main screen/Home ribbon will be changed to Computation Interval. The Computation Interval is used to establish the relationship between the Nominal Annual Rate, the Effective Annual Rate, and the Periodic Rate. The Computation Interval usually matches the payment period. For example, a typical Canadian mortgage would show a Semiannual Canadian Basis with a Monthly Computation Interval. Interest is compounded at the end of each Computation Interval at a rate that is equivalent to the Effective Annual Rate.
When Canadian is the Compute Method in TValue, you can select how to treat interest for Odd Days. The Odd Days setting in the Configuration tab's Canadian Calculations group controls the calculation of interest for periods less than one compounding period in length. It can be either Straight-line or Compounded.
For Straight-line Odd Days interest, the interest factor is
(n/365) * nom
where n is the number of odd days and nom is the Nominal Annual Rate.
For Compounded Odd Days interest, the interest factor is
(l + eff)n/365
where eff is the Effective Annual Rate. This factor is the Odd Days equivalent to the Effective Annual Rate. Compounded Odd Days interest, though not always used, is required in Canadian practice.
Comment The term "daily rate" as used in TValue is, under Canadian practice, correct only when Odd Days Compounded interest is used.