REM 400 Lecture Notes - Lecture 4: Promissory Note, Interest Rate Risk, Commercial Mortgage

• School: Ryerson University
• Department: Real Estate Management
• Course: REM 400
• Professor: David Nickerson

Document Summary

Announced annual mortgage rates in canada and the us are not equivalent. This implies that the method for extracting true" monthly mortgage rates from their announced annual counterparts differ in each nation. Typical american residential mortgages carry an announced annual rate, i, which is equal to the actual 12 month coupon rate, y, annualized by simple interest: i = 12y. Example: consider a standard american 30-year xed rate mortgage with an announced annual mortgage (coupon) rate of 6%. To calculate your monthly coupon payments, you need to extract the true" or actual monthly coupon rate y from this information. Using the simple interest expression above, we calculate the monthly rate as . 5%: y. Typical canadian residential mortgages carry an announced annual rate, i, from which the actual monthly coupon rate can be inferred via the expression: (1 + y)^12 = (1 + i /