According to The Federal Interest Act, how frequently can mortgages compound interest?

The Federal Interest Act specifies that the compounding of interest on mortgages can occur semi-annually or annually. This means that lenders can calculate interest on the principal amount either two times a year or once a year, allowing borrowers to understand how interest accumulates over the lifespan of their mortgage.

Semi-annual compounding is particularly common in Canada, as it results in a lower effective interest rate compared to more frequent compounding methods, such as monthly or quarterly. This aspect is beneficial for borrowers, as it impacts the overall cost of borrowing, making it an essential consideration in mortgage agreements.

While there are other compounding frequencies available in financial products, the Act restricts mortgages to only these specific options to protect consumers and ensure transparency in mortgage practices. Understanding this regulation is crucial for those involved in the mortgage industry, as it influences not only the terms of mortgages but also the calculations of interest owed throughout the loan term.