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amortization.com Ltd. 905-639-0374
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The words “monthly compounding” actually refer to the situation
of how the interest is compounded if a payment is missed. If a monthly
payment is missed the interest due is added to the outstanding balance
and next months interest calculation is based upon an outstanding balance
that contains unpaid interest. By definition, monthly compounded interest.
If the schedules monthly payments are made in full each month, the interest
calculated is not monthly compounded. The monthly compounding only refers
to the case when the payments are missed. The words “monthly compounding”
really should be replaced by “monthly compounding of interest if
payments are missed”. The esoteric and confusing vernacular is so
strongly imbedded in the financial industry it is almost impossible to
clarify. |
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